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Can You Get a Mortgage On a Boat?

Night time view at the harbor with parked yachts.

If you’ve been thinking that only celebrities or the very rich can own a boat, note that through a secured/unsecured loan or mortgage (for a live-on boat), you can have your boat as well. Yes, you heard right. I’ve always dreamed of owning a boat and decided to find out what the possibility of me owning one looks like. I was over the moon to find out that you could finance it through a marine finance entity, dealership or bank, etc.

Keep in mind that your credit score will have to be better than when you’re trying for your first home or even a car. After all, a boat is an item of luxury. I’ll tell you all about the ways you can get a mortgage on a boat, the requirements, and everything else you need to fulfill your boat-owning dream.

Financing a Boat Through a Bank

Euro boat with fifty euro background.

Like loans for motor vehicles, boat loans are provided by credit unions and banks, among other financial institutions. Secured loans, like auto loans, can be used to fund boat purchases because of the predictability of the resale value of the boat.

How long can you get a loan for if you want to buy a boat? A new boat can last anywhere from 10 to 20 years, depending on its size, but personal watercraft loans can be much shorter. You may be able to get a loan for a second-hand yacht, but the terms will be shorter. Lenders aren’t interested in financing a yacht that won’t be on the water for a long time, so you may not be able to receive secured financing at all.

For longer contracts, expect to pay a greater rate of interest than you might for a mortgage or an automobile. Moderate boat loan rates frequently apply to loans with shorter terms and greater repayments than you would be willing to take on, so do your research before applying.

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Financing a Boat Through a Dealer

You’ll notice right away that this is the one that stands out to you. As soon as you enter a boat show or go to a dealership, you are bombarded with billboards detailing the monthly cost of owning this beautiful vessel.

At the dealership, you can secure loans at the same place and time as the order. In contrast to other forms of boat financing, dealers receive a portion of the profits from these arrangements, which are arranged via independent financial organizations. Don’t forget to do some comparison shopping.

Interest on Your Boat Mortgage/Loan Might be Deductible

Luxury white yacht kitchen interior.

Many would-be boat owners aren’t aware of the following fact. Like a home mortgage, you may be able to deduct some of your boat’s interest payments. To be eligible, your boat must have a galley (kitchenette), head (bathroom), as well as sleeping quarters to serve as a holiday home.

As long as you don’t already have a second house, you can take a deduction for the boat, and there are limitations on how you can use it to bring in revenue, including charter services.

Related: 11 Different Types of Yachts

A Home Equity Loan to Finance Your Boat

A home equity loan, commonly known as a refinance, is an excellent option for financing a boat. To begin with, the interest rates on these loans are frequently lower than those of a traditional boat loan. Second, even if your yacht doesn’t qualify as a second residence, you can still deduct the interest you pay on up to $100,000 in home equity debt ($50,000 for an individual).

Using a home equity line of credit can give you more freedom in making your monthly payments (HELOC). In the “draw” phase, when you can borrow on your credit line, they operate as just an interest-only debt. This gives you the flexibility to lower the monthly payments when necessary while increasing the amount of money you pay towards the loan’s principal.

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Throughout the draw phase, HELOCs are established as adjustable-rate loans, which means that you must be aware of the chance that your rate of interest might increase substantially before you are forced to start paying the principal.

A traditional home equity loan is less complicated. You take out a loan and pay it back over time with regular monthly installments. Fixed-rate and adjustable-rate home equity loans are the most common options.

Refinancing your current mortgage could also be a possibility and it reduces your existing interest rate, making it a wise decision.

Drawbacks of Borrowing Against Your Home for a Boat

Yacht with a family onboard.

Borrowing against your home’s equity has the major drawback of requiring you to pledge your house as security for the loan. As with a traditional mortgage, if you fall behind on your payments, the lender has the right to foreclose on your home equity loan, but you could still lose your house as a result.

So, only take this path if you’re confident in your ability to make the payments on time and withstand any unforeseen financial issues.

How can I get a Boat Loan if I Have Poor Credit?

There are higher credit standards for boat loans than there are for mortgages or auto loans because they are considered luxury commodities. A credit score of 700 or higher isn’t an issue. However, the lower your score, the more difficult it will be to get a loan.

If you’ve been rejected for a boat loan from one lender, that doesn’t imply you won’t be accepted by another. Look around. Reduced credit scores might lead to much higher interest rates, so keep that in mind.

Preparing for a Boat Purchase

Standby small modern boat for sale and rent.

With a little forethought, you can make the process of purchasing a boat a little less stressful. If you’re considering purchasing a pre-owned boat, it’s a good idea to have an expert inspect it first. In fact, before issuing your boat loan, the majority of banks would need a thorough survey.

A survey is like a professional house inspection in that it is carried out by a qualified individual. The average inspection cost per foot, based on the style of the boat, is a great investment. Poor maintenance is responsible for about 12 % of all boat damage and can be difficult for a casual onlooker to spot.

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Pre-qualifying for a loan before shopping for a car, whether new or used, is a smart move. In this way, you’ll know how much you can manage, and the merchant will realize that you’re a real customer. You’ll be able to move through the bargaining process more quickly and easily.

A major purchase like a yacht necessitates a thorough understanding of all the financing options available. To get the ideal bundle, you should look into all of your alternatives, including financing through a dealer, taking out a HELOC, or getting a separate boat loan.

Terms of Boat Loans

When compared to auto financing, boat financing offers a great deal of latitude. A boat loan with a length of 120 months or more is quite reasonable and, to be honest, rather usual (10 years).

Anything less than 60 months, or five years, is considered a short loan period for boat finance. The typical loan duration is between eight and 12 years, and the long term is between 12 and 15 years.

How Boat Loan Interest Rates Work

Motor boats parking in the harbor.

Unless you’re taking out a short-term loan of fewer than five years, you’ll get the same interest rate. When buyers learn that the interest rate on an eight-year boat loan will be the same as that on a 10- or 12-year loan, they are more likely to choose the latter.

Why? Because it lowers monthly payments without increasing the total cost of a loan, it is popular with buyers. This allows purchasers with a smaller budget to purchase a yacht, and it gives them the chance to make additional principal payments.

The worth of a boat increases over time. In comparison to other property, boats depreciate at a substantially lower rate. Boat prices tend to remain stable over time in regards to trade as well as resale worth.