Financing Finance Kubota or Home Equity?

[knucklehead]

GreenJeans, we opened one of those equity line of credit loans to do several things, including buying a tractor (which will far outlast an auto, boat, bike, etc., and keep it's value, more like a home - we wouldn't use equity to purchase those other things). We shopped 6-8 banks, and right now they are doing variable rates right at prime, which is 4.75%. It appears that even with economic recovery on the way, the Fed won't be boosting rates that quickly, and as we know, the market is quite skittish due to several influences. Our intention is to pay down this loan quickly, check the "wind", and either use it again or use cash. We usually are not interested in the gamble of variable rates, but now seemed right. We asked about conversion, should rates take off, also, and of course that would be quick in the same bank. We just don't see the Fed going up multiple percent in the next 5 years, and if so, conversion to fixed is easy.

We try to keep our debt well below what the banks say is the norm of 40% (funny, it was 33% ten years ago), which you probably already know includes mortagage plus property taxes plus homeowner's, any other loans, and credit card debt. We do not borrow against the house lightly, and only in small amounts (~ 10-15% of value), which we pay down quickly.

This variable thing is a departure from our normal conservative thinking, but at this time, and in the near term, it seems less risky. And we're seeing fixed LOC's around the Northeast in the low 6% range, too.

 

[oombala]

home equity was best for us, 4.75 which is prime. it is a variable rate , for 10 years which makes payments easier, but more important, the interest is tax deductible.. all of it. if for some reason prime shoots up we can lock in a fixed rate

 

[kcook]

A home equity loan may have to be paided over 10 to 15 years, do you really want to make tractor payments for that long!

KCook

 

[manganos]

And it may NOT take 10 to 15 years to pay it off.

 

[kcook]

True, but if you wait for more than 5 years how much intreest are you paying. I guess I would not want to make payments longer than 5 years on a tractor of this size.

KCook

 

[Alan L.]

As has already been mentioned, the home equity loan is deductible, whereas the manufacturer interest is not, unless the tractor is used in a farm or other business. Also, the home equity can be paid off early.

The biggest negative to the home equity loan is the closing costs. It doesn't make much sense to pay much in the way of loan costs for a 5 year or less loan.

I might consider a low variable rate home equity loan with no loan costs, otherwise I would go with the manufacturer financing.

Of course cash is better, but not all of us are that liquid.

 

[DavidInNH]

Another (probably controversial) financing alternative is the "401K loan". You can (I think) generally borrow an amount up to 1/2 of your 401K deposits, limited to $50K. You pay interest to yourself.

-david

 

[heehaw]

not sure about being liquid, but i just flat don't have that kind of money, anywhere: that's why i am borrowing money to by a new tractor! plus with the kubota co. doing the loan, the insurance from kubota is a lot less than i was quoted from a couple companies, including the one that insures my home and vehicles. sure would have to pay off a tractor after it was stolen, or burned in a barn fire..
heehaw

 

[manganos]

Check your homeowners policy. Farm Bureau covers all my farm equipment. When I bought this place I recieved a "farm loan" and it is zoned agricultural. I just call to tell them what I add and take a picture of it.

As far as the 401k is concerned. I have borrowed money out of mine because the stock market sucks right now. I rather borrow it and pay interest to myself instead of not gaining anything at all. The only problem is if the stock goes up you will not get the "goes up" price. I borrowed 50% of mine which was around $42,000 ( I'm only 24 and been putting 16% of my pay into it for a couple of years) and they take it out of my paycheck as "loan 1". It works for me!

 

[heehaw]

i'm insured with nationwide, the agent quoted me more than i pay for full coverage on my new truck, to cover the tractor, and that did not include any coverage if i was hauling the tractor and it fell off the trailer, the insurance thru kubota covers it all, at a lot lower price.
heehaw