Great Loop Radio Podcast: 2024 Boat Marine Financing Update

Welcome to the Great Loop Radio Podcast brought to you by America's Great Loop Cruisers Association. We're dedicated to sharing great loop information and inspiration with those actively cruising, planning for, or dreaming about a great loop adventure. I'm Kim Russo. I'm the director of AGLCA. Today we're continuing our 2024 kind of market-wide update on boat buying and financing and insurance and all the things that so many of our new members are needing as they're on the search for their great loop boat. So today we'll pick it up with financing. My guest is Cindy Lewis with Sterling Associates and she will be telling us what to expect in 2024. So before I bring Cindy in, I do want to take a moment to recognize and thank our admiral sponsors who support AGLCA at the highest level. They are Curtis Stokes and Associates, Great Loop Yacht Sales, PassageMaker Trawler Fest, Skipper Bob Publications, and Waterway Guide Media. As always, we encourage our listeners and viewers to support these businesses that support the great loop. And with that recognition out of the way, I would like to bring in another of our very valued sponsors who's been with us for a really long time. I'm Cindy Lewis with Sterling Associates. Thanks for being here today. Thank you for having me, Kim. Happy new year and happy new year to everybody. Here it is a cold, snowy, spitty, snowy, gray day here in Annapolis where I live, but we know spring's coming and it's time to be planning for those spring-summer boating adventures. It is time and as we sit here recording, it is gray and rainy here in Punta Gorda, Florida and there's snow in Huntsville and snow all over the Midwest, I believe, so yeah, gloomy time, but it really is time to start talking about boats, buying boats. You know, the Chicago Boat Show was this past weekend, so snow or not, it is time to be looking at this. And we know one of the things a lot of our members are curious about is financing and that's something that's been a little volatile over the past couple of years, so I think 2024 update is really needed. You know, we've all kind of got our perceptions. I was just hearing on the news this morning that credit card interest rates are at an all-time high. Most people are not financing a boat on their credit card, thankfully, but we know that all those interest rates are somewhat tied together, somewhat market-driven, so the perception right now is that interest rates are high. What is the perception versus really the reality of what it comes to for interest rates when you're financing a boat? Sure, so we all know that the feds have gone up and raised rates several times in the last 18 months and that's reflective on anything we're buying and financing from cars to boats to homes. Rates are not as high as some people think they are and other people think the sky is falling because rates are between seven and eight percent. Those that have been around and, you know, around on the planet for more than than the millennials, they've seen higher interest rates, but if you're under 40 and you're told the rates are seven or eight percent, the sky is falling and life is terrible because you never saw higher rates and you bought your first home at a three percent or less mortgage, so the rates are not that high, but relative for some people it's shocking and surprising. A lot of the demographic, if you're a little bit older, you were buying your first house in the 80s and interest rates were 12, 14, 15, 18 percent, so you remember that. It's a long time ago, but a lot of people were affected by that and you can hear the news every day that interest rates are going down, mortgage rates are going down. Well, they're going down maybe an eighth of a point. They're not going down three points. You know, mortgage rates are still around the same as where both vote rates were. I don't know where rates are going. The Fed has talked about lowering rates. They did not lower rates. They did not raise them, but they did not lower rates after they did not raise them, so that's a little bit of confusion because people are all wound up around the rates. In the early 80s, when I started in the finance business, or in the early 2000s rather, when I started in the finance business, we were refinancing the world down from eight, nine, ten, eleven, twelve percent, and down to six percent or six and seven, and you know, right now rates are in the seven to eight percent range. I have a couple of boat show specials at seven percent. Depending on the age of the boat, they're going to be a little bit higher rates if the bank does older boats, and again, it's not one size fits all, so any of us lenders will work to get the customer the lowest rate out there, keeping in mind that regular savings accounts, just your basic money market and CVs, are paying five and a half percent, so if you can borrow at a little over seven and keep your money at the bank and earn five and a half, you're probably coming out ahead because you have access to that cash, so you're looking to four percent, your money was paying no percent in the bank, so one side versus the other, one hand feeds the other, that kind of thing, so you just have to look at it in relative terms for how long you're going to keep the boat, the average length of a boat loan is about three to four years, 39 months is what they say, and so you have to take that higher interest rate, take the 20-year terms out of the mix, because you're not going to keep paying on that boat for 20 years, you're going to pay it off, or you're going to get into another boat, so the perception is, for some people, that rates are really high and the sky's falling, for many other people, they're very pleased to see where the rates are, they're thankful that they can finance a boat purchase, that money's available, and they have their exit strategy for loopers, it might be to do the loop and sell the boat in 18 months when they're done, other people, you know, they're going to finance for the short term, and when other funds come available, they'll pay the boat off, nobody really likes to have debt, but having a boat loan is not a bad kind of debt to have, because you can keep your money working for you. Right, and I think that's, you know, there's a couple of different ways our members go about it, you know, some are financing the boat because that's what they need to do to get into the boat that they want, some are financing simply to leave their money, as you said, earning, you know, what it can earn for them, so as interest rates have ticked up, have you seen, you know, what's the activity been like, has one or the other of those categories, you know, dropped off from financing, are people just not buying a boat because the rates are higher, or, you know, are those people still financing, but the people who have cash on hand are using that cash instead of holding it, like, how does it all break down, and is there still a lot of activity in financing? Right, there is still a lot of activity, now we've had, you know, the last three years of pandemic boat buying and lots of activity has been great for everybody, it has slowed down to what I would call more, quote, normal pace, maybe where we were in 2019 and early 2020, pre-pandemic, and we're at a nice pace, I think all of us got a chance to breathe during the holiday season with the two long weekends, the phone rang and people, we had closings, but it wasn't frantic, and what I'm seeing in the first two weeks in January, the phone's ringing, some applications are coming in, all of our sales reps are getting business, we've got boat shows starting Chicago, Boston, Atlanta, all opened last weekend, so we'll be seeing some post-boat show activity, and I'm seeing on the forums that people are still, oh, I'm, we're getting ready to look, and we're making some appointments, and we're traveling this winter, so the activity is still there, people are still buying boats, they're still borrowing money to buy the boat, it's, I can't say it's slowed down, it's tempered back to what I would call a normal pace for this time of year, mid-December to mid-January is always a little bit slower, although the last couple of years it was very busy, but again, we're still looking at the tail end of the pandemic boat buying frenzy. I think what I've found is that I have a lot of people that are pre-approved for a boat purchase, that perhaps they contracted a boat that failed survey, or two boats failed survey, or the boat wasn't what they thought it was, and they're still looking. I just did a big email this morning to about 30 people that I have with approvals asking, you know, are you still boat shopping, and most responded, yes, I'm still shopping, and I'll get back to you when when we found something, and they're not, you know, the rates have gone up, they don't mind, and they still feel it's a good option to have to be able to finance, so people are still financing, and yes, it slowed a little bit, but not very much with my customers. All right, tell us a little bit, Cindy, if you can, what's the typical down payment structure? You kind of mentioned the rates are somewhere typically between seven and eight, but what's the down payment structure, and is there a certain age of the boat we should be looking for if we're planning to finance? If the basic ABCs is the banks will require 15 to 20 percent down, and if the loan amount after down payment is above $100,000, they'll go 20-year terms. If it's under $100,000, they'll go 15-year terms. You can put more down that doesn't necessarily change anything like it might in real estate, so if you wanted to put 30 or 40 percent down, certainly up to you, but it doesn't give you longer terms, and it doesn't necessarily give you a better rate. One bank will give you a slightly better rate with 30 percent down, but they're in the higher rate structure right now, so it's a wash. Again, we all try to get you the lowest rate possible, but it's not one size fits all. Typical age of boat, 20 years old or newer. I do have banks that will go back to 1989, which is a 35 year old boat. One bank will go back to 93, so we're fortunate for that because there are a lot of nice boats in that late 90s, early 2000 range. Not all finance companies have banks that will do that. I think there's more banks out there that are starting to finance older boats, but for me that's nice because a lot of the loop boats are getting to be that 20 to 25-year-old range, and that was the glory of the boat building years, and etc. It changed that new boat manufacturing, and of course new boats are still selling, which is good because in five years they'll be used boats for people to buy, but again, the value boats that the criteria for loopers, a lot of them can be over 20 years old. So again, talk to your lender and make sure they have a bank for that. I get people that call me and that I might have spoken to before that say, well, my friend told me that I can't finance a boat over 20 years old, or I can't finance a custom. Well, in general, the national lenders will not do that. You've got some regional lenders or some credit unions. They will often work with you, and I always tell people, check with your local banks and credit unions. Typically, they don't do boat loans, but you might find one that does, and that'll work for you as well. I understand USAA has come back to the boat loan game, but they're not very competitive, but again, they are doing boat loans again, but they make their pencil and get their rates back down. What happens is sometimes these banks will, their portfolio is full, and so they'll raise their rates because they want to slow down a little bit, but again, there are banks out there that will lend on older boats. All right, so let's take a quick break and play a message from one of our sponsors. When we come back, we'll continue the discussion and kind of ask Cindy to get out her crystal ball and tell us what to expect in 2024, so we'll be back in a moment. The Boat Galley will make your boat life better. They offer eight online courses on topics related to living on a boat, such as how to store everything you'll need, living with a smaller fridge, taking a dog with you, and effective use of your VHF. Their quick reference cruising guides will simplify your life underway, giving quick answers to questions like, where's the next fuel stop, or how high is that bridge? The Boat Galley Cookbook and its 800 boat-friendly recipes, including 75 Docktail Appies and 40 drinks, will make cooking aboard a snap. Get 10% off purchases with code AGLCA. Good morning, loopers. Many of you are probably already cruising in southeastern waters, and that is where the Salty Southeast Cruiser's Net focuses all of its efforts to help you enjoy your time on the water. So as you prepare for the next leg of your journey, and as your resource for accurate, timely, and useful information, we want to invite you to use and add your knowledge to the wealth of information that's available through the Cruiser's Net in its directories for marinas, bridges, and anchorages, as well as the latest fuel prices in your area. Our mission of Cruisers Helping Cruisers, may we invite you to help those following in your way by sharing with us your cruising experiences. Thank you. Have a great day. Welcome back to the Great Loop Radio Podcast. My guest today is Cindy Lewis. She is a marine financing expert with Sterling Associates, and Cindy's kind of filling us in on what to expect from financing a boat in 2024. So, Cindy, you know, crystal ball time. What do you expect that rates will do in 2024? Well, the chatter on the news shows is that the feds will drop rates this coming year, and that's kind of the chatter on all the news stations. But they haven't made a plan yet. They haven't said anything specific. We hope they do. I think they will personally. When will that happen? Who knows? But what that means is right now, don't let your dream stop and buy that boat. And we can always refinance. Refinancing is a big part of our business. And refinancing is minimal expense. And if rates drop down in the next six months or so, you know, refinancing is always an option for you. And we're happy to do that. And, you know, one of the things I heard a quote, you know, if you just if you keep waiting, you're going to wait and you're going to lose some boats. And what are you waiting for? You want to take this opportunity to buy a boat and get into the boating and boating lifestyle. So if it costs a little bit higher interest rate, we can always refinance. So when I say don't wait, that right boat could take a long time to come back again. And what I'm seeing, too, is that even though there's more boats on the market than there were this time last year, the good boats sell fast. And there's a lot of boats that are failing survey. And I read every survey. And what I'm seeing is a lot of the pandemic boats are coming on the market and people that bought them did not do proper maintenance. And so now they're coming on the market and they have some hiccups. So, you know, the good boats are out there. But don't let, you know, a half a point in interest rates stop you from buying the boat because we can always refinance. So, you know, that's what I'm looking at is, OK, let's get you get it done, get you in the boat, and we'll circle back in six months and see where we are. And I have a lot of customers. I'm saying that, too. So I think, you know, people shouldn't hesitate. Money's available. The economy is pretty strong. You know, we hear doom and gloom, but I think a lot of that is just to be sensational on the news. I think the economy is pretty strong, particularly for the people that are buying boats. They've invested well. They've saved their money. And there's, you know, they're not worried about, you know, what's next versus, you know, the crimp on some working families and people that are not in the boat buying market. That's a little different. But for this business, you know, again, there's plenty of opportunity and plenty of people out there buying boats. Yeah. You know, I think one of the things I've heard you say before, Cindy, you know, in looking at a boat loan, and it may be a 15 and maybe a 20 year loan, and people tend to look at the interest rate and kind of calculate that over the length of the loan. But you had given a number in the past of the average length of a boat loan. Most people don't keep the loan for the whole term of the loan. And it was to me, it was a shockingly low amount of time. So if you recall, like, what is that the number of years most people keep their boat loan? Yep, the average length of a boat loan is 39 months. So it's just over three years. And they either get into another boat, or they pay it off. A lot of people will pay the loan off within one or two years. And the reason they're borrowing is because they don't want to tie up all their cash up front. And if it's not for them, then they put the boat on the market, and they only have to make a few payments until the boat is sold. Rather than have a big chunk of change tied up in something that they're not going to be able to use. I always tell people, look at your exit strategy, someday, you'll want to need to or have to sell the boat. And it's in normal times, when a boat gets listed, it can be a few months before it sells. During pandemic time, it was a few hours before it sells. But if you had to list your boat for sale, because for some reason, you had a health problem or family problem or something in life came up, and you couldn't use your boat or couldn't continue with your trip, having two or three payments until the boat is sold is a lot better than having several hundred thousand dollars tied up into a piece of property or equipment that you're not able to use. So that's another reason to consider financing, because it gives you some options. Nobody's holding you hard and fast to make that boat payment for the next 20 years. So again, most people will use it as a time to take a breath and make sure that the boat's the right boat, that the lifestyle is the right lifestyle, that this is really for them and that everything is falling into place. And again, another reason to consider financing instead of tying up all your cash in a purchase. You can always pay it off, but you can't always get that cash back if you need it quickly. Right. So tell us about some of the things that if somebody's looking to purchase their boat, if they're a year, maybe two years out, and are considering the possibility of financing, what are some of the things that they can do to get themselves prepared to be attractive to those lenders? Sure. Well, one thing is credit score. Your credit score needs to be 700 or above. Most people have good credit these days. So 700 or above. If it's higher, these banks typically are not score tiered, meaning if your score is over 800, you don't necessarily get a different rate. It's pretty much 700 or above. And that's going to be the first part to open the door to the approval. They're going to want the down payment and they like to see liquidity after down payment. Now, if you're over 59 and a half, your retirement accounts are considered liquid. But if you're not over 59 and a half, what you have in your retirement savings is retirement. And since you would be paying a penalty to access that. So it may require a little bit of advanced planning to make sure that you've got savings checking or brokerage accounts and non-retirement accounts. And the kind of rule of thumb is 12 months of expenses after the down payment. And those expenses would include any boat payment, mortgage, car payment, that kind of thing. Not necessarily taxes, insurance, but they want to see that you have a cushion to get by for at least a year. And they don't want to have you have a trouble and then say, here's the keys back. We can't, you know, we can't keep the boat. That happened a lot in 2008 or 9. After that, the bank's liquidity is very important. As far as experience and things like that, first of all, insurance is a very important part of it. And I know you're going to have an insurance podcast as you do every year or a couple times a year to upgrade that. But the banks require insurance with a 2 to 3 percent or less deductible and, you know, your various other coverages, but they want, you know, the basic deductible 2 to 3 percent or less. And one of the reasons they want that and what will happen is because the rising costs of insurance, these insurance companies are quoting lower premiums, but they have higher deductibles and customers tend to not read the fine print. And I'll see somebody send me a policy or quote with an 18 percent deductible and that won't work. And one of the reasons is, is that the bank owns the boat with the customer. So you're a partner with the bank until it's paid off. And if something should happen and the boat has a high deductible, the price for labor in boatyards is just over the top. And the banks want to be sure that that deductible is low enough that you're going to get something repaired. And if you have a high deductible, let's say, you know, 20, 30, 40 thousand dollars, you might say, well, I'm just not going to deal with it because it's too much. I don't want to have that out of pocket. So having paying a little higher premium to have a lower deductible is what the banks are looking for. And insurance has been for myself and any of my friendly competitors and coworkers. Insurance is sort of the thorn in the side. You know, I always tell everybody, have you checked your insurance? The brokers, the brokers are becoming very dialed into talking about insurance before they take a contract and they get people to do their homework. I do the same thing and make sure you're going to get you can get insurance because a lot of times people will assume because the boat they have now that they bought five or six years ago was a simple phone call and they think that they can just add the new boat to the policy and everything's changed. So, you know, we require insurance, but that's a big part of planning ahead is finding out what the insurance requirements are and knowing what that's going to cost because it's a big part of your monthly payment now. And, you know, it's not just the boat loan payment, but it's the insurance, it's the dockage, it's the maintenance. And the banks look at that stuff too. If you're buying a very expensive boat, they take a, they don't put it into their calculation, but they say, okay, if you're buying a big 55 foot sailing catamaran, they know that it takes a special hoist to haul it out. It's going to be more expensive. They know it's, it's bottom pain, it's got two hulls, it's twice the surface, that bottom pain's more 500 a gallon. They know that they know slips are more expensive because they're so beamy, they're going to have to have the T slips. So there's certain formulas the bank will work in. So that's why they like you to have a cushion after the down payment. And they need to know that, that you're going to take care of that boat and have the resources to do that because boats cost money, which is another reason why I tell people finance part of it and keep the rest in your cruising kit because boats cost money and you don't want to be stuck in a situation of where you're selling stocks and jumping into your retirement accounts to pay for a costly boat repair. So, you know, even if you could write the check, it's still something to consider just to keep your money working for you and have it available until you get into the rhythm of boat ownership. Now, some people, you know, this, they're, they're buying a loop boat. They've had multiple boats before. They have a good understanding of what it takes, but many people that get into boats to do the loop are moving up from small lake boats or no boats at all. And it's, you know, there's a, you know, considerable amount of additional expenses to consider. And one of which is insurance and that's not going down anytime soon. We're lucky that we didn't have hurricanes this year and, you know, hopefully we don't next year too. And then things may flatten out a little bit. And we will be having John Horton with Jack Martin and Associates joining us. We actually put it off into kind of mid-February because John is expecting some updates from some of the insurance carriers in early February. So we thought we'd wait, perhaps things will improve. We don't know what those updates are going to be, but we thought it would make sense to wait until those were in. So, you know, mid-February, we should have that episode of the podcast out. Cindy, looking to financing again, talk to us about the liveaboard question, because that's can be a little bit of a bad word in financing as well as an insurance and many other things. Right. So the banks do not do full-time liveaboard loans. And this goes back to 2008 with the Dodd-Frank mortgage reform act, which came about when the economy crashed, the government went in and looked at every retail installment contract and made the determination that if you live full-time on your boat or full-time on your RV, that it has to be treated as a regular conventional mortgage. The bank said, well, these are recreational loans and we structured them to be recreational loans and we don't want them to be conventional mortgage. So we'll just not do them. And one of the reasons they said they don't, they won't do them has to do with recapture. It's not that they don't like liveaboards because liveaboards tend to take care of things because they're touching them and they're on them and they're using them all the time. But if something should come up and you decide to take it up some remote creek and not pay your monthly payment because you can't, or drive down some dirt road in the middle of the desert, you know, on your RV, they'll find you eventually. And then they have to do an eviction. And eviction laws are different in every state and every county. And so rather than have to deal with that, they just say, we don't do that. So there's ways people will do that. We need you to have an address. We need to have a physical address. You can work it around a family member or a friend or a lease. What you do after you get the boat and you're moving around for a while, that's up to you. A couple of the banks will make you sign a form saying you're not going to live aboard or you're not going to charter it. Others, basically they want to show that you've got a terra firma or a regular address. And again, same thing comes with insurance. I don't know the details, but I know insuring full-time liveaboard is far more difficult than insuring extended cruisers. And I just say, we're going to call it extended cruising. And, you know, we can help you, you know, structure a lease, get your driver's license with your brother-in-law, a brother-in-law lease, that kind of thing, and make it work so we can check the boxes and get you into that boat. Right. And then kind of finally on that kind of thread, what about retiring and future income streams? Because a lot of loopers are on the verge of retirement, planning to start shortly after they retire. How does that work on financing? Right. So everybody's different and we don't have a crystal ball. Obviously, many people have done some great planning and have nice assets that are spilling off income. Others, when they retire, you know, there's still such things as pensions out there. Not that many people get them anymore, but you have a lot of people with military and government pensions. You have your social security income and that kind of thing. I always say the easiest time to get a boat loan if you're going to retire is to get the loan before you retire. The bank looks at where you are now and previous two years income. If you came to me and said, I retired two weeks ago and I don't have any income. Well, that can be a challenge because we don't show your income in retirement unless you've been spilling off lots of income before you stopped working. So it's cash flow based lending. They want to see where the cash flow or the income is coming from. And, you know, you're supporting documents, again, pension, social security and that kind of thing. So we do retiree loans all the time. Again, they're not impossible to do, but if you're going to retire and you can plan ahead and say, well, I'm going to retire in September of 2024 and I'm planning to buy a boat in the fall. You can get that boat before you have your retirement last day party. You don't have to tell the bank you're retiring on September 15th, but we can still get you that boat loan and you do whatever you do after you get the loan. That's the better way to do it. And again, the hardest part is when somebody says, I just retired two weeks ago. It's not that it's impossible, but we've run into challenges and you might have to wait a year until you can show stream of income with that retirement income. Right. So just to kind of wrap it up, Cindy, with all that we've talked about, tell us why, why finance at this point? Why not just pay cash for the boat? Well, paying cash is great. If you have it, it's great for some people. I always say consider your exit strategy. You may not want to tie up all that money into, into a boat. You may need to access that money at some time. So therefore, if you took the payment and, you know, added that to your monthly cost of my, this is going to be my estimated cost of doing the Great Loop, throw in a boat payment in there, keep your money in the bank working for you, spilling off income to use to help finance that loop. That's, you know, reason to consider financing. Again, you could finance a portion of it and keep some of your cash for your cruising fund. A lot of people do that. I'm seeing a lot of people with very expensive boats saying, well, I'm going to finance half. And, you know, they're, they're borrowing half because they want to have access to that cash to look for other investment opportunities or to have it as resources for their fueling their trip. So again, cash can be great, but you might want to look at other reasons to keep your cash. A lot of people will talk to their financial planners and find out they'll pay penalties if they take too much out at once. You can take it out over a period of 18 to 24 months and stretch it out over calendar years. That's the type of thing where people will pay that boat off in a couple of years by taking money out without having additional penalties. So it's a little bit difficult because everybody's got a different financial background. But the thing is, is you don't want to be paying penalties by taking too much money out of the bank. And unless, you know, you've got that in a liquid position where, you know, you're just in cash or brokerage accounts and not in retirement accounts. So again, cash can be great, but there's lots of reasons to finance and interest rates are really not all that high. So again, if you're worried that at seven or 8%, that the sky's falling down, we'll refinance you when it goes down. And we think it will, you know, halfway through the year into the third or fourth quarter. I don't think we're going to see anything first quarter. We have some Bocho specials out there right now. But again, I think it's going to be a slow and steady reduction in rates when it starts, but we don't have any idea when that might happen. Right. And Cindy, I don't think we've mentioned, is there still a second home deduction that can be taken on boats? Right. The IRS section 163 can work for some people. Again, that's dependent on how you do your taxes and how you cash flow and between you and your financial person and the IRS. So as long as it has cooking, sleeping and toilet facilities, it's possible for some people to take a second home deduction. And some people will put a boat into an LLC and then they figure out how to get some business write offs because they might have their own business and do some entertaining and that kind of thing. But that's a whole other subject. Yeah, definitely. Financial planning needed in that respect, for sure. Right. Right. So if you are looking for more information on this topic, Cindy is a frequent speaker at our events. Our next kind of introductory Great Loops seminar is it's a day and a half. The first half day takes covers this as well as finding your boat, ensuring your boat. And then the second day is we kind of move into planning for your great loop and how to get started on the adventure. So the next one is coming up in March in Cindy's hometown of Annapolis. And registration is open. Yes. And it's the registration is open on our website. Great loop dot org. Just go to the events menu and you'll see that Annapolis Looper Lifestyle listed there. Cindy, looking forward to seeing you there and looking forward to seeing many of our listeners and viewers as well. So thanks for the information today, Cindy. We really appreciate your sponsorship and appreciate you sharing the details. Well, I'm I'm happy, happy to help. And again, I'm happy to answer questions anytime. So please tell your audience, you know, you can find me through the Great Loop website and I'm never far from the phone. And if it's phone tag, I'll call you back. Yeah. And again, Cindy Lewis with Sterling Associates. Thank you for joining us today. Thank you for having me. And thanks to everyone who's watched or listened. We'll be back next week with another episode of the Great Loop Radio podcast. And still until then, safe cruising.