Monday, 18 September 2017

Ah, the call of the open sea. For many of us, boating evokes images of untouched idyllic isles, exotic ports of call, and untold exciting destinations.

Luckily, if you decide to get a yacht, there are a wide range of financing options. Whether you're buying a new or pre-owned yacht, a popular way to finance your purchase is with a bank loan.

A Wall Street Journal article titled "Getting a Marine Loan to Finance a Yacht Purchase" notes that getting a marine loan is comparable to securing a mortgage. Edgar Montañez, a Global Wealth private client banker for BBVA Compass, says yacht prices can vary dramatically based on size, manufacturer, equipment, and amenities, ranging anywhere from $1.5 million to $10 million or higher.

In many cases, high net worth clients have the option of several financing solutions to help meet their specific financing goals and needs, Montañez says. "Interest rates for yacht loans can vary from floating-rate to fixed-rate loans with payment options and amortizations up to 20 years," he says. 

Yacht financing, however, does carry added risks for financial institutions. A client who suffers an unexpected financial setback is more likely to default on yacht payments than home or car payments. Also, it can be difficult repossessing an item that is often at large on the high seas. That's why most bankers include an attorney, specializing in marine loans, in the financing process to help protect the interests of the bank and the client. 

Required paperwork

  • If the vessel is new, financial institutions typically use a purchase contract to determine value. 
  • If the yacht is used, most lenders will require a marine survey performed by a bank-approved third party surveyor to assess the valuation. The marine survey will assess relevant factors including the yacht manufacturer, upgraded engines, and navigational equipment. 
  • If you are interested in a smaller vessel valued below $1 million, a low-interest personal loan could be an attractive option. 

No matter what route you choose, your yacht purchase may qualify for various tax breaks such as a second home deduction. With any major purchase, it's smart to consult your legal, tax, and financial advisers about your personal situation. 

Additional expenses 

Keep in mind that, as with any major purchase, there are always a range of ancillary expenses that can add significantly to your costs. Immediate extras include inspection and title fees and applicable sales tax (depending on the state). According to Yachtworld.com, much like owning a home, there are also costs you'll incur for the life of the boat, such as maintenance, docking fees, insurance, and fuel. In general, expect to spend an additional 10 percent of the cost of the yacht yearly for as long as you own it. 

When you're ready to go from landlubber to seafaring adventurer, knowing your financing options and obligations can help ensure you enjoy smooth sailing. 

The content provided is for informational purposes only. Neither BBVA Compass, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial advisor about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA Compass or any of its affiliates.

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The content provided is for informational purposes only. Neither BBVA Compass, nor any of its affiliates, is providing legal, tax, or financial advice. You should consult your legal, tax, or financial advisor about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA Compass or any of its affiliates. 

Securities and Insurance Products:
ARE NOT DEPOSITS ARE NOT FDIC INSURED
ARE NOT BANK GUARANTEED MAY LOSE VALUE
ARE NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY