You can’t miss the headlines: “Fed cuts interest rate again.” Banks urge you to “Refinance today!” Spam e-mails remind you that “Rates have been slashed again! Save money!”
The spiraling drop in interest rates is spurring lots of marketing spin, but what matters most for boaters is that marine lending rates are at their lowest levels in decades. So financing a new boat or refinancing an existing loan is something you should seriously consider-you’ll likely find some good savings if you act quickly. “We’re in a refinancing boom,” says Kenneth R. Landon, CEO of Key Bank’s Recreation Lending. “And we’re seeing the lowest rates in probably 40 years.”
What kind of numbers are we talking about? While early 2001 saw interest rates as high as 8.5 or 9 percent, you can now find fixed-rate 20-year loans for as low as 6.75 percent. Sure, the short-term federal interest rate has experienced deeper cuts (about 3 points over the same time period), but boating’s smaller 1 to 2 percent drop is still a rare opportunity to snag some low monthly costs. This is especially true for new boats, as manufacturers are adding attractive incentives: Formula, for example, offers a choice of cash rebates or reduced-rate financing as low as 1 percent for two years on all its boats. And last fall, Tiara served up 0 percent financing on new boats for a full year. Look for similar deals from other builders.
But it’s refinancing that’s hot right now. “People tend to stick their contracts in a drawer and forget about them. But now is the perfect time to pull them out and compare them against the new rates,” says Matt Bartosh, president of Offshore Financial, a marine lender. Cliff Kapel, president of an aviation maintenance company in Florida, did just that. Kapel bought his 38′ Sea Ray Sundancer two years ago and financed the $200,000 balance at a rate of 8.5 percent. But last fall he snagged a rate of 6.75 percent. Monthly savings: $250.
So should you follow the lead of other boaters? “If you can save 1 percent or more, it’s an automatic decision,” says Landon. “And even 0.5 percent makes a phone call worthwhile.” Since closing costs on boat loans remain small (count on approximately $500), a small difference in the interest rate could save you a bundle over the life of the loan.
With rates dropping across the board, you might be tempted to refinance your home as well. In fact, some boaters are rolling their boat loans into their home mortgages. There are upsides to combining your loans, says Robert Doyle of the Florida accounting firm Spoor, Doyle & Associates. Home loan interest rates are lower than marine rates, so your payment will be less. Also, the mortgage interest may be tax deductible. But there are downsides, too. “If you default on your boat,” says Doyle, “creditors can come after your house as well as your boat.” According to Landon, although people trade homes every eight years, boats go every three. Keeping the loans separate gives you more flexibility when it’s time to sell your boat.
One caveat to the refinancing game: Tom Caruso, president of Total Marine in Mamaroneck, New York, notes that the super-low rates can be a little misleading because they tend to be valid only for high-dollar loans-generally more than $100,000. Anyone with, say, a $30,000 loan can count on a rate that’s at least a couple percentage points higher.
Still, no matter what your financial situation, you have nothing to lose by calling your lender. And with some forecasters predicting an economic recovery soon-and a subsequent possible increase in interest rates-the time is now. “The difference may not be much,” says Bartosh, “but if it puts a couple extra six-packs in your cooler, it’s worth the effort.”