Can You Refinance Your Timeshare or Timeshare Resale? Part 1 of 3
Wednesday, September 23, 2009
With everyone looking to cut back on monthly bills, Sell My Timeshare NOW is often asked how timeshare owners can refinance timeshare on which they are still making payments. Timeshare owners also want to know whether they can sell timeshare they still owe money on, and whether they can borrow money against a timeshare they own in full.
These are all very important and timely questions and over the next three days, The Timeshare Authority will look at each of these issues, starting with if and how you as a timeshare owner can refinance a timeshare on which you are still making payments.
First let’s be candid and say that money is tight everywhere and credit is even tighter. But if you can lower your interest rate, you will lower the monthly payment you are making on your timeshare.
Suppose you owe $5,000 on a timeshare that is financed at 17 percent interest. If you take 5 years to pay off the debt, your monthly payment will be $124.26, for a total payout of $7455.60. If you can get the interest rate down to 11 percent, you only save $15.55 per month, which doesn’t seem like much, but over a five year period adds up to $933 saved. And who turns down $933?
Now let’s do the same comparison using a larger debt. $25,000 owed on a timeshare, financed at 17 percent means a monthly payment of $621.30 over a five-year period. At 11 percent, the monthly payment drops to $543.56. The final tally on the higher interest rate comes to $37,278, while at the 11 percent rate comes in at $32,613.60—a savings of just over $4,664 during the five-year payoff period.
For further comparison, let’s look at the $25,000 debt at both interest rates, only this time spreading them out over 10 years. At 17 percent, but a 10-year payoff, the monthly payment drops to $434.49, while at the 11 percent interest rate over this same period, the payment drops to $344.38.
Clearly, if you can refinance timeshare debt taking your monthly payment from $621.30 (the higher interest rate, shorter term) to $344.38 (the lower interest rate and the longer term), that’s enough reduction to provide relief in many household budgets. However, remember that as good as it sounds to save almost $277 monthly in your payment, in the option that calls for lower interest but also longer term; you are paying more money in the end—substantially more. That innocent sounding $344.38 turns into a whopping $41,325.60 when paid out over a ten-year period.
If you need the relief now, then it makes more sense to get into a payment plan you can afford than go with one that will result in late fees, negative items on your credit report, and ultimately higher interest rates on everything you buy. When current cash flow dictates that you must opt for paying off a debt more slowly in order to keep your monthly payments as low as possible, you can try to offset the long-term cost of the interest by paying extra payments whenever possible to ultimately shorten the period of your debt and lower the overall amount.
We used 17 percent as our higher interest rate because many timeshare companies that offer on-the-spot financing have historically done so at roughly this rate. For comparison, we used 11 percent, because consumers can often obtain credit cards with 11 percent interest rates, and transferring your timeshare debt from developer financing to a credit card may be an option for some timeshare owners. If you happen to have a credit card with a lower than 11 percent interest rate, then your savings will be even greater.
The Changing Financial Picture Limits Timeshare Refinance Options
Yet many consumers with excellent credit histories have been surprised to see their credit limits slashed at the same time their credit card company has increased their interest rates. With less open credit and a higher interest rate, refinancing timeshare to your credit card may not be your best option.
In 1996, Tammac Financial became one of the first lenders to offer timeshare refinancing, among its loan products. At this time however, Tammac Financial is not accepting timeshare financing applications, and explains it with this message that appears on its website, “Unfortunately, due to economic conditions beyond our control we are no longer accepting new loan applications.”
Another lender with a history in timeshare financing and timeshare refinance is First Again, however, currently, their website bears a similar message, “Unfortunately, due to economic forces beyond our control, First Again is presently unable to accept new loan applications; however, we are continuing to service our existing customers and recent loan applicants.”
If you belong to a credit union or have a good standing with your bank, you may be able to obtain a signature loan to refinance timeshare debt. These loans do not use the timeshare to collateralize the debt, which means there is no reason for add-on costs to the loans such as a timeshare appraisal. In fact, there are very few instances in buying or selling timeshare or financing timeshare (either new or as timeshare resales) in which you need a timeshare appraisal.
Before you make any decisions about refinancing a timeshare or transferring existing debt on your timeshare loan, look at the following:
- Does your current loan have a prepayment penalty?
- Does the new financing you are planning to obtain have such a penalty?
- Are you currently able to claim your timeshare mortgage interest as a tax deduction?
- Will you be able to claim your timeshare mortgage interest if you transfer the debt to a new loan or a credit card?
- Are there origination fees or transfer costs for setting up the new debt?
Somewhere in your desk drawer, you have a calculator. Get it out and use it to fully analyze and compare your options. Run multiple scenarios, just as we have done in the comparisons above.
If you are uncertain about changing the way you finance your timeshare, talk with your financial advisor, bank representative, or someone you trust and who is well versed in personal finance. These days, we all need to think twice and act prudently when it comes to our dollars.
And check in with The Timeshare Authority for tomorrow’s timeshare blog; we’ll be looking at your options for selling timeshare on which you still owe money.