Should I Pay Off My Boat Before Cruising?

[Mr B]

Originally Posted by capn_billl

Great advice if you can find me an absolutly safe investment, (like a CD or safer), that pays 6%.

No...I didn't think so.

Put that money in an investment, then in a few years you can have both the loan, AND the losses from when the investment crashes.

My long term cash investment gets me 6.2 per cent for the next 2 years, and its Govt guaranteed, So if the bank crashes, the Govt will give me back my money in full.

But thats in Australia, We do things a bit differently here,

[Reefer.]

Yes or No, it depends...

In Australia we get no deduction for our primary place of residence. We pay no capital gains tax on the sale either.
If you get too far behind in the payments, the bank will sell the house for whatever it can get. We don't hold the title here until the loan is fully paid.

If the house is financially underwater, If there is money still owing, You still owe the bank till you die.

Perhaps that's why we have a pretty stable housing market here...

While I'm on the subject, I have just finished paying off my house. So I'm debt free but apart from another investment property, I have less than $30K cash.

I am, however looking very keenly into dragging about $100K back out from my mortgage to take advantage of the high Aussie dollars effect on boat prices here.

So I will basically be borrowing money to buy a 41ft monohull.

My wife is not convinced that this is a good idea.

In my case though, If I waited the 2 years it would take me to save that money, I might miss the boat, so to speak.

So horses for courses...

[valhalla360]

Assuming you aren't a General or running other side buisnesses that create a lot of deductions, there's a good chance on your military salery, the mortgage deduction is rather pointless to the discussion.
- First, you have to subtract the Standard Deduction you get with or without paying mortgage interest.
- Then on the remaining part, you likely get maybe 10-15% back depending on your tax bracket.
- Assuming 10% interest on $40,000, that would be $4,000 which is less than the Standard Deduction. Even if you had other deductions to meet the Standard Deduction, you are looking at a whopping $400-600 in reduced taxes in exchange for giving the bank $4,000.

Playing the leverage game with the loan, doesn't make sense for something that will be happening within a couple years. Volitility adds too much risk. You need to be saving, not investing.

My suggestion is to follow these steps:
- Set asside $1000 baby emergency fund.
- Pay off all the other debts.
- Increase the emergency fund to provide for 3-6 months living expenses.
- Pay off the Boat
- Stock up the cruising kitty.

With no debt, we live very nicely on $2000/month. If we had to we could get by on $800/month (it wouldn't be a fun lifestyle but we could do it).

[awpptdt]

Save the money and pay cash for the boat. That will give you time to really research the market and find out exactly what boat and equipment that you really want.

[capn_billl]

Getting a loan to grab a bargain dream boat while you are still working, is an entirely different animal, than dribbling your cruising savings away on interest payments.

In most cases saving, and paying cash will save you money over a loan to buy a boat now.

[msponer]

The mortgage interest deduction may be less interesting to you once you are living off of your savings.

The US tax code is very generous to people who are living off their savings. Work Less Live More: The Way to Semi-Retirement has some examples worked out, but the gist is that investment income for reasonable to somewhat obscene world cruising budgets does not generate much of a tax liability, if any at all. Because you can control your income to be in the lower tax brackets, and much of your income is at the lower long term capital gains rate.

I also wholeheartedly agree with the folks who say that the mortgage forces you to have hull insurance, and that could easily cost you more than the tax deduction. Especially if you add the cost of annual or biannual surveys (and any little line items the surveyor may require you to fix, whether or not you agree with it).

[Group9]

Mine's paid off. The feeling of freedom is worth more to me than any tax deduction.