Financing question

[_en_Plain_Air_]

We are purchasing a new MH in May. We would like to finance the purchase to preserve invested funds. Our choices:
1) home equity line credit (potential for increase in rate over time)
2) commercial motorhome loan (fixed rate)
Now that we are retired, our 'income' is much lower than that documented on previous tax returns. We have heard that it is hard (impossible) for retired people to get MH loans, irrespective of net worth. The loan granting process seems to be driven by income. We don't want to start filling out applications/disclosing personal financial information without some insight. Any thoughts, suggestions, or ideas would be helpful. Any companies to recommend? Thanks !

[wing_zealot]

Not a HELOC, you never want to go with a variable rate on something that you will be financing for long term. You're old enough to have seen the devastation that caused to lots of people a while back when rates sky rocketed.

[_en_Plain_Air_]

Thanks everyone for your comments. Wine_zeolot,that's EXACTLY the root of the question. We can figure the 'tipping point' at which it's better to fiance than pay cash. We've decided to finance, based on those calculations. The question relates to the 'best' route (home equity vs classic commercial RV loan), and how much a fiance company would want to see in the way of an income stream in order to approve a loan. I have heard it's hard for retired folks to obtain a mortgage (or RV loan). We are not taking social security (yet).

[GoPackGo]

Alliant Credit Union seems to be very RV friendly. They advertise heavily in Escapees magazine also. Alliant is one of the largest CUs in the country (HQ is in Chicago).

Also, check out US Bank. My dealer steered me to them when I bought my current rig in 2013.

* And don't forget that the interest is deductible come tax time (2nd home).

Tim

[wing_zealot]

If you are living off your investments; i.e.: will be using your investments to pay the monthly payment on the loan, then it is all about the interest rate vs. the rate of return on your investments.

What this means is, it doesn't make sense financially to pay 7% interest on a loan while your investments are only returning 4%. In that case you would be further ahead to pay cash from your investments. But if you can get a fixed rate loan for 4%, while your investments over the same period of time earn 7%, then that's a winner.

So the long and short of it is, you need to make a reasonable projection of how much % your investments will earn over the same period of time as the loan and find a loan rate % that is less. Otherwise just pay cash from your investments. You really need a fixed rate loan because you don't want to be caught in a spiral where variable rates go up while returns on investment income goes down - that will kill your investments in very short order.

And remember, financial advice \ investment advice you get on the internet or for free is worth exactly what you paid for it.

[pk1023]

I used a credit union last summer to upgrade, they went 3.09% on a 12 ear or something silly like that. I over pay each month and have no early payment penalty.

3.09% is less usually than the cost of inflation, I feel very good about the enjoyment my family gets from the trailer. It's well worth NOT paying 150 dollars a night for a comparable hotel room.

[stickdog]

Credit Unions. Much easier to deal with than banks.

[DownTheAvenue]

1. Never finance a depreciating equity (a motorhome) using anything else as collateral. Always use the depreciating asset as collateral.

2. Watch out for the closing costs with Essex Credit. While theinterest rate may seem very competitive, their closing costs and other fees will add up to almost $1,000!!!! That will turn a 3% loan into a 5% or more loan very fast!

[bsinmich]

I retired in 1994 at 55 YO. I got a 20 year loan on my Newmar in '05 with no problem. I did pay it off early.

[tatest]

Are your funds set up so that you can loan the money to yourself, so that you pay back the interest to yourself? E.G. I can still choose to borrow from my 401K, rather than take distributions.

Not that it makes much difference once we are retired. Every cent going to pay principle and interest on the loan ultimately comes out of my retirement savings and their earnings, and all the depreciation represents principle lost forever. Sort of keeps me from buying things I don't really need, even if I want them and know I can afford them.

[time2roll]

If you are very well positioned I would be OK with the HELOC.
With good equity you could later refi any mortgage with the HELOC for a fixed rate.
Home rates are so low right now that you may as well go for it.
Just be careful that the loan is not going to be around longer than the RV.
Easy borrowed money makes it easy to overspend....

[_en_Plain_Air_]

OP here.
No dealer - factory direct.

[DSDP_Don]

First choice would be a fixed loan on the motor home. See what the dealer can do.

Second choice would be the Home Equity Loan. Usual wisdom is to not roll a motor home loan into your house. If something goes awry, you could lose your house.

[Executive45]

Good Sam and others default to Essex Credit, so you might skip the middle men and go directly to them. They also appear to have the lowest rates....3.99% at the moment. Easiest, by far is the home equity loan, but you're risking financing a depreciating asset with your home...depends on how comfortable you are with that....to me, it doesn't matter as I've never defaulted on an obligation and there's no reason to start now.

Rather than fill out countless applications on line, which, BTW, will affect your FICO score, I'd call an agent and talk directly with them telling them your concerns. Most competent agents will be able to tell you whether you're in the ball park with your financial information. Once you feel you're close, then start the verification portion of the application. Pull your credit report NOW along with your FICO score. This will allow you to have an intelligent conversation with the agent....good luck....Dennis