Home equity loan to buy AC, good idea?

[FL030]

Looking to take about 60K out of my home to buy a bug smasher. Is this a really bad idea? I am not referring to aircraft ownership per say, as i am already there and doing that, but am speaking to the financing of it Should i pay cash and just use my equity line of credit for an emergency fund, or would this be simply good use of hard won equity?

Looking for input from any personal finance gurus out there that also can relate to a flying adiction!

 

[Timebuilder]

First, if you knew anything about my personal finances, you'd know that I am NOT a guru.

That said, I'd put the cash in an index tracking, no load mutal fund, with the index tracked being the S&P 500 or the Wilshire.

The loan, with a god rate (hopefully) can have deductible interest, which imediately makes it a better idea than any other type of loan, except an interest free loan from Dad.

You can put the plane on leaseback at a respectable school, and have those folks who share your love of flying help you pay for it.

That should save you enough to start an annual inspection and new engine savings account.

Good luck.

 

[aero99]

uhh...no, unless you want to live out of your plane.


Equity loans sound great and I am sure many people have done such even on this board for various reasons. A plane wouldn't be a good reason in my opinion.

Lets say you come upon hard times. What are you gonna pay first, the home loan or the plane loan? If you can only pay the home loan and not the plane, they can still take your house to pay for that plane that you missed a few payments on.

I have had many friends do equity loans for home improvement, education, etc.....I just wouldn't want the chance of something happening out of my control that ends up making me lose my house.

If you have decent credit why not just apply for a seperate loan for the plane? If you are already an owner as you state, it shouldn't be a problem.

Good luck.

 

[Timebuilder]

Cash from the index fund can handle an emergency payment or two so what you are proposing as a danger does not happen.

 

[aero99]

"That said, I'd put the cash in an index tracking, no load mutal fund, with the index tracked being the S&P 500 or the Wilshire. "


Timebuilder you have bigger ba....uh, thumbs than I do.

I didn't know you could even do that. And remeber you are repaying that loan, its not just "free" money. Usually the institution granting the loan wants to know what you are doing with the money and I can't see investing it in this day and age being a good choice. But, I am by no means a "guru" either.

 

[tarp]

Do the math.

The HELOC will be a prime plus somthing in your contract. These days I'd guess about 7.5 to 8.5% but you have to remember that most HELOC rates will move with the prime rate.

Uncle Sam will give you between 28% and 33% of that back depending on your tax bracket. Therefore, you are going to "rent" the money for about 5.5 to 6% per annum.

Can you take your "cash" money, go out and find a dependable investment that will return greater than lets say 7 to 8%? In this economy, I'd say you are going to hard pressed to find such a deal.

The problem for most buyers of aircraft is that they have to finance the purchase then use the cash reserves to pay for all the amenities and upgrades on the side.

Let's say you buy that $60,000 plane. 5% sales tax to your freindly state government is $3000 more. $800 for the pre-buy inspection. Hangar or tie down fees between $450 and $3900 per year. Insurance about $1200 a year. First annuals with discrepancies will run about $1500 to $2800 for simple aircraft. You gotta buy fuel, oil and any toys that move your spirit (read avionics upgrades, intercoms, stormscopes, etc.)

So, do you still have cash for all that? If not, your decision is made - use your HELOC. If yes, you are all set and are a very comfortable human being or you need to buy more airplane!!! [The buy more airplane comment is a joke ]

 

[Timebuilder]

I am making my suggestion on the supposition that he already has the plane, and wants only to change financing plans. That suggests to me that he already knows what happens to money and airplanes.

The leaseback should help him to approach a break-even point.

 

[azpilot]

If you do apply for a loan look at Deep Green Bank. deepgreenbank.com. They have a rate of 4.3%. It is always .5% below prime as well. So that is pretty **CENSORED****CENSORED****CENSORED****CENSORED** good. My plane loan is at 8.5%. I agree with one of the posters about is it worth losing your house over a plane? You also need to make sure that if you were forced to sell your house you could pay your 1st and 2nd off after commisions. Many of these loans will let you go way overboard. I have used mine to finance some of my training costs which is must better than Visa.

Good Luck

 

[JetPilot500]

If your financial situation is so tight that your only source of financing your aircraft would be your home equity, don't even think about it.

If you are in a good financial situation, then a HELOC is a great way to get a good rate, roughly around 5% right now and deductable.

Don't buy an airplane thinking it will be cheaper than renting...it's not. Don't think that if you will lease it back, then you can fly for free...you won't! Planes are not cheap no matter how you look at it. You can do all the calculating you want, but when the annual comes do and you find out you have problems, then what?

Good Luck,
JetPilot500

 

[gsrcrsx68]

If you would like to know about many mistakes with finances, just let me know.

2 of the biggest are
1. taking home equity loans and
2. investing in the stock market and

the biggest mistake is a combination of the above 2.

plane does not equal investment and therefore only buy with your luxury(disposable) money.