Financing question - (beginner level)

Matthew

Matthew

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Matthew
OK - so I've been looking at airplanes for sale. Never owned before, but I feel like when I was a kid and was looking through the Sears Christmas catalog for all the cool stuff I wanted.

Someday I hope I'll get there, but until then, I have a couple of questions:
What are normal, average terms for financing something in the range of say, 60-80k? Typical rates? Typical length of the loan? Would my normal everyday bank be a place to start or are there places that specialize in loans like this? Or are there alternatives to loans (obviously, CASH is an alternative).

I know there are whole lot of other things to consider besides just the airplane purchase, but I figure I ought to start planning.

Matt
 
Matthew said:
OK - so I've been looking at airplanes for sale. Never owned before, but I feel like when I was a kid and was looking through the Sears Christmas catalog for all the cool stuff I wanted.

Someday I hope I'll get there, but until then, I have a couple of questions:
What are normal, average terms for financing something in the range of say, 60-80k? Typical rates? Typical length of the loan? Would my normal everyday bank be a place to start or are there places that specialize in loans like this? Or are there alternatives to loans (obviously, CASH is an alternative).

I know there are whole lot of other things to consider besides just the airplane purchase, but I figure I ought to start planning.

Matt
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There are specialized lenders (google for a bunch like Dorr, NAFCO, etc.), I haven't looked for a long time, but I'd suspect the underwriting standards are being raised with all of the bad stuff happening lately.

Some people swear by MBNA, others swear at them...

Trapper John
 
Matthew said:
OK - so I've been looking at airplanes for sale. Never owned before, but I feel like when I was a kid and was looking through the Sears Christmas catalog for all the cool stuff I wanted.

Someday I hope I'll get there, but until then, I have a couple of questions:
What are normal, average terms for financing something in the range of say, 60-80k? Typical rates? Typical length of the loan? Would my normal everyday bank be a place to start or are there places that specialize in loans like this? Or are there alternatives to loans (obviously, CASH is an alternative).

I know there are whole lot of other things to consider besides just the airplane purchase, but I figure I ought to start planning.

Matt
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Matt: you just have to shop to see what's there. Some loans can have shorter terms and not amortize (pay down principal). Some fully amortize over a term of 15 to 20 years (full pay off). What is available depends on your financial statement, age of the plane and market conditions at the time. AOPA has a program that might give you an approximation. We shopped pretty hard when I purchased our last plane and beat the terms and fees AOPA quoted but it was a larger loan with strong financials behind it.

Best,

Dave
 
Check with your current bank, if it is a locally owned/operated bank you may get better service from them. The Big Banks just look at you as a number(credit score) and thats it. My local bank just looks at your debt to income ratio and never runs a fico score. Terms for airplanes are prime+1%, $15-20K are amortized for 10 years, $21K-35K are amortized for 15 years.Over $35k is amortized for 20 years. If you borrow less than $15K they base it off payment range that you want.
I hate corporate banks and will never do business with them, they are the reason we're in the mess we are in now.
 
Thanks for the tips. I really have several years (depends on how long it takes to get the kids through college), but I hope that early planning will help make ownership possible. I just pulled some dollar amounts out of the air - I'm just guessing that what falls below that range now, might end up inside that range a few years from now.

That loan amount range is probably higher than I'd actually go, but I just picked a couple of numbers to start with.

So, does your normal, average, 20-30yr old 4-cyl, 4-seat, fixed-gear actually appreciate? Depreciate? Stay up with inflation?

Matt
 
Matthew said:
So, does your normal, average, 20-30yr old 4-cyl, 4-seat, fixed-gear actually appreciate? Depreciate? Stay up with inflation?

Matt
Click to expand...

Well up until this year you could count on some appreciation if kept in good shape and maintained well. But if you look at some of the website you will see a downward spirl of a few models (i.e. twins and High HP singles) Some are still holding their own and should rebound when the housing market turns around.
 
Not financing an aircraft right now, given the volatility of the economy, would be an incredibly prudent move.

Besides, if you figure you can afford the payments, then you can afford to put those payments into a money market account, and save up for the plane, and pay less overall in the long run than if you got it now and paid for it for 20 years.
 
Has anyone used a home equity loan to finance?

That would seem to be a good way to go if you have to use credit. I opted to save up and pay cash for the plane so that I would not be in debt, but I understand that option is not available to everyone. So using one that would help you reduce your tax burden would seem like the next best thing IMHO.
 
Matthew said:
...So, does your normal, average, 20-30yr old 4-cyl, 4-seat, fixed-gear actually appreciate? Depreciate? Stay up with inflation?
Click to expand...

Prices on used planes always appreciate until you buy one, at which point the value goes down. ;) I wouldn't expect an aircraft to be hedge against inflation. Try real estate. :D

You have the risk that you could wake up one day and find the plane is only worth it's value in scrap. We can be grounded by laws and fuel availability and cost.

I would not recommend owning for a mere mortal. Such is against the laws of nature. Get into a partnership to spread the risk.

That said, my loan at a local bank, which would probably not write one now, is a renewable 5 year loan on a 15 year amortization. I have one flip left.
 
Greebo said:
Besides, if you figure you can afford the payments, then you can afford to put those payments into a money market account, and save up for the plane, and pay less overall in the long run than if you got it now and paid for it for 20 years.
Click to expand...

Good idea, that's the way I would probably go anyway.

Also, a partnership (as mikea mentioned) is another option I've been considering.

And yes, the thought that one day it's only worth the salvage value isn't a pretty one. I've seen enough airplanes (and what look like used to be pretty nice ones, too) rotting on the ramp.

Isn't Christmas shopping fun?
 
smigaldi said:
Has anyone used a home equity loan to finance?
Click to expand...
I'd think twice before putting a relatively low risk asset which generally appreciates in value at risk for the purpose of buying a much higher risk asset which tends to hold its value but at a much higher cost, annually.
 
Greebo said:
I'd think twice before putting a relatively low risk asset which generally appreciates in value at risk for the purpose of buying a much higher risk asset which tends to hold its value but at a much higher cost, annually.
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Agreed.

Mega-dittos on that for those who refinance a home and dump credit card balances into the refinance. During the year I handled mortgage documents and did closings, I don't think I saw more than 10% of the refi's that did not include credit card payoffs. Reading HUD-1s were simultaneously sad and entertaining.

I would have liked to seen some of those finances a year later. I'm betting most credit card balances were back up there.
 
KennyFlys said:
Agreed.

Mega-dittos on that for those who refinance a home and dump credit card balances into the refinance. During the year I handled mortgage documents and did closings, I don't think I saw more than 10% of the refi's that did not include credit card payoffs. Reading HUD-1s were simultaneously sad and entertaining.

I would have liked to seen some of those finances a year later. I'm betting most credit card balances were back up there.
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I'm sure they were. In 2003 or 2004, I took out a 2nd mortgage for about 15k to consolidate consumer debt.

In 2006, I refinanced, moving the first, second, and 30k of new consumer debt into the new loan. And then I gave my credit cards to my wife to hold for me cause I couldn't be trusted with them.

At least I learned from the first time...but I've no doubt I'm the exception, not the rule.
 
Greebo said:
I'd think twice before putting a relatively low risk asset which generally appreciates in value at risk for the purpose of buying a much higher risk asset which tends to hold its value but at a much higher cost, annually.
Click to expand...
That and if something happens they can't take your house, right, with an airplane loan they'd take the plane.

I think I read something like that here.
 
KennyFlys said:
Agreed.

Mega-dittos on that for those who refinance a home and dump credit card balances into the refinance. During the year I handled mortgage documents and did closings, I don't think I saw more than 10% of the refi's that did not include credit card payoffs. Reading HUD-1s were simultaneously sad and entertaining.

I would have liked to seen some of those finances a year later. I'm betting most credit card balances were back up there.
Click to expand...

The first couple on Oprah this morning had been laid off, no health insurance, 29 credit cards, and $90,000 total balance. But they had EXCELLENT credit.

Oh. They live on the credit cards. They make the minimum payments and charge their life to cards. :hairraise:
 
mikea said:
The first couple on Oprah this morning had been laid off, no health insurance, 29 credit cards, and $90,000 total balance. But they had EXCELLENT credit.

Oh. They live on the credit cards. They make the minimum payments and charge their life to cards. :hairraise:
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Sounds like the US government ;)
 
Greebo said:
Besides, if you figure you can afford the payments, then you can afford to put those payments into a money market account, and save up for the plane, and pay less overall in the long run than if you got it now and paid for it for 20 years.
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Good avice to save for it, but if this is really a long term savings plan you can do much better than a money market account. Even bank CDs pay much more than mm accounts.

-Skip
 
rubber314chicken said:
That and if something happens they can't take your house, right, with an airplane loan they'd take the plane.

I think I read something like that here.
Click to expand...

Something like that. What is it about foreclosure you don't understand?

They can't take your house in a bankruptcy proceeding. (and, not being an attorney nor familiar with the new bankruptcy law, I am uncomfortable using the word "can't". I'd like to sneak the word "usually" into the last sentence.....)

If you own a house that is "upside down" (house worth less than the mortgage balance) and in spite of other good assets you elect to not pay the mortgage, your house will be taken away from you.... unless you file for bankruptcy. If you file, your plane will be an asset that the court will play with regardless.

-Skip
 
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Skip Miller said:
Something like that. What is it about foreclosure you don't understand?

They can't take your house in a bankruptcy proceeding. (and, not being an attorney nor familiar with the new bankruptcy law, I am uncomfortable using the word "can't". I'd like to sneak the word "usually" into the last sentence.....)

If you own a house that is "upside down" (house worth less than the mortgage balance) and in spite of other good assets you elect to not pay the mortgage, your house will be taken away from you.... unless you file for bankruptcy. If you file, your plane will be an asset that the court will play with regardless.

-Skip
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Can't? They sure can take your house except in Florida, which is why OJ and other fine citizens moved there and most of the scammers calling me are calling from there.
 
Do not finance toys. Tools, OK, but not toys.

Truly the most depressing thing I've ever done was, once when I did have a loan on an airplane, wrapping the loan payments into the hourly cost "just to see" what it would be. Ugly is what it was.
 
Texas has a homestead law also, but first mortgage lien holders can foreclose, as can the lender on a home improvement loan and there are more exceptions. Don't bank on this unless you understand it. It's why many developers pay off their home and don't borrow against it. Your federal retirement plan is also very difficult for a judgment holder to get to.

I don't like to see folks borrow against a home equity loan to purchase a toy. Several folks on another board were touting that a couple years ago. Stogy ole Dave suggested they not do it. He was told homes in CA, WDC and other placed don't go down and to keep his advise to himself. A lot of folks now losing a home borrowed against it when there was substantial equity. I don't feel sorry for them if they took money out for other than an emergency of some sort.

Best,

Dave
 
Dave Siciliano said:
Texas has a homestead law also, but first mortgage lien holders can foreclose, as can the lender on a home improvement loan and there are more exceptions. Don't bank on this unless you understand it. It's why many developers pay off their home and don't borrow against it. Your federal retirement plan is also very difficult for a judgment holder to get to.

I don't like to see folks borrow against a home equity loan to purchase a toy. Several folks on another board were touting that a couple years ago. Stogy ole Dave suggested they not do it. He was told homes in CA, WDC and other placed don't go down and to keep his advise to himself. A lot of folks now losing a home borrowed against it when there was substantial equity. I don't feel sorry for them if they took money out for other than an emergency of some sort.

Best,

Dave
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Oh. that only makes sense. You wouldn't be able to get a mortgage if the lender couldn't foreclose. :P

So I guess that means not only does an OJ or DeLay or a Skilling move to FL and sink the $Ms into the house, they make sure the house is paid off.

When I refi'd the bank said they wanted to write the plane loan. I'll see how it goes at rollover time.

I don't see how the HELOC breaks you even if you're outside down. If you could afford the payments you still can unless you have an adjustable rate.
 
Matthew said:
OK - so I've been looking at airplanes for sale. Never owned before, but I feel like when I was a kid and was looking through the Sears Christmas catalog for all the cool stuff I wanted.

Someday I hope I'll get there, but until then, I have a couple of questions:
What are normal, average terms for financing something in the range of say, 60-80k? Typical rates? Typical length of the loan? Would my normal everyday bank be a place to start or are there places that specialize in loans like this? Or are there alternatives to loans (obviously, CASH is an alternative).

I know there are whole lot of other things to consider besides just the airplane purchase, but I figure I ought to start planning.
Click to expand...

Matt,

I can really only tell you what I've run into in my bit of looking at the subject, both for myself and my club.

My flying club uses a nice local bank. In talking with them about aircraft loans, the biggest two things that came up were:

1) Not just any bank will do an aircraft loan, as there are apparently some "special" things that need to be done. My own bank, for instance, will not. But the club's bank, having learned what they need to do for an aircraft loan, doesn't hesitate to do aircraft loans. Interestingly enough, they're happy to give us a loan for a nice new single-engine four-seater, but said that if one of their business customers came to them looking to finance a jet, they wouldn't do it. Interesting.

2) 20% down. Period, end of story. No 20%, no loan.
 
Some will justify a second or a HELOC because they can deduct the interest. The same rule applies. Don't put your home at risk. Either have the money or suffer through a separate financing plan.
 
I refinanced my house to cover the purchase of the plane. Sold the house, paid off the mortgage, and still have the plane; owned outright. I was well on my way to paying off the house also by doubling up on my monthly payments (against the principal).
When buying a plane, you also need to look at the other costs involved. Maintenance, "enhancements", PARKING, and insurance can all be shocking. Obviously the enhancements are more open-ended as the items offered get better and cheaper. I just added a 496 with weather and TIS to mine.
The best insurance quote I got was with USAIG. They offered some good numbers then made it better based on my showing recurrent training, safety seminars, and WINGS participation. They also sent me a welcoming gift. Not having made a claim though, I have no idea how quickly they pay off.
 
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