Refinancing DVC

[rufio]

Has anyone here refinanced their DVC loan? DH and I have been considering it (we have a 15.25% interest rate!) but have been unable to do anything because my ex still hasn't gotten the house from my previous marriage out of my name. Well, he's finally starting the process to get it out of my name this weekend! So we're thinking about refinancing as soon as possible, but I don't know how it works since it's not a mortgage. Anyone have experience with this?

 

[LuvtheGoof]

While no direct experience, I thought that a DVC loan was a mortgage, since you are buying real property? If you can, I would refinance it as a second home. That way, the interest is then deductible on your taxes (assuming you can itemize) as a second home mortgage. The property taxes portion of your dues is also deductible in the same way. Good luck!

 

[rufio]

While no direct experience, I thought that a DVC loan was a mortgage, since you are buying real property? If you can, I would refinance it as a second home. That way, the interest is then deductible on your taxes (assuming you can itemize) as a second home mortgage. The property taxes portion of your dues is also deductible in the same way. Good luck!

Hmm, I didn't know that! We went into a bank and were basically told that we're out of luck until the other house is out of my name, so I guess we have to wait until that is taken care of, but we're definitely planning to refinance.

 

[DVCOwner]

I once checked on this with a friend of mine that runs a bank. He informed me that if I want to purchase DVC points that most banks would not finance this type of time share at the rate of a second home. Due to the default rate on time shares, this loan would have to be done as an unsecured loan. That is why the interest is so high. His only suggestion he had would be a second loan on an existing house to get the interest rate down. I am sure this would apply to refinancing also.

 

[rufio]

I once checked on this with a friend of mine that runs a bank. He informed me that if I want to purchase DVC points that most banks would not finance this type of time share at the rate of a second home. Due to the default rate on time shares, this loan would have to be done as an unsecured loan. That is why the interest is so high. His only suggestion he had would be a second loan on an existing house to get the interest rate down. I am sure this would apply to refinancing also.

Unfortunately, we don't have an existing house. Hopefully we'll be able to do something lower than 15.25% though! I was reading something earlier about how at the time of our purchase Disney had raised their standard interest rates because of the economy, landing most of us lucky buyers interest rates of 14% and above.

 

[LuvtheGoof]

I wasn't aware that banks thought that way about timeshares. We paid cash for all of our points, but deduct the property taxes every year. I just figured that most banks would be OK with a Disney purchase.

 

[GoofGoof]

I wasn't aware that banks thought that way about timeshares. We paid cash for all of our points, but deduct the property taxes every year. I just figured that most banks would be OK with a Disney purchase.

Most banks don't differentiate DVC from any other timeshare. The general resale market for timeshares is non-existent so if you default the bank is left holding an asset that is difficult if not impossible to sell. People in the know understand that there is an active resale market for DVC, but unfortunately DVC is still lumped in with other timeshares. As @DVCOwner said most banks will consider a timeshare loan in the same category as an unsecured personal loan which will have a pretty high rate. Disney finances DVC purchases, but they bundle the loans and sell them to an investment bank. In order to sell the portfolio of loans they need to have a very high interest rate to be attractive. After the credit crisis banks reduced or stopped their buying of these loans which forced the rates up.

 

[Lynne M]

OP, I'm sorry you're in this situation, but I'm afraid you're not going to be able to refinance that loan for a significantly lower rate.

A timeshare loan is not, from a bank's point of view, like a mortgage on a house. A house has some resale value, most timeshares have next to none. Many, if not most, banks, won't even finance a timeshare. If they do, you'll get a very high rate that's pretty much the same as what you got thru Disney.

If you don't pay your mortgage on your house, they can repossess the house, and hopefully sell it for something at or better than the amount left on the mortgage.

If you don't pay your timeshare loan, the bank takes your timeshare away - and in most cases, they'll only get a few bucks for selling it.

DVC is a little different and has some resale value, because Disney is currently propping up the resale value with ROFR. But….it's still a loser for the bank. Here's why:

I don't know which resort you bought, but unless it was VGF, it's very likely that by buying direct from Disney, you paid much more than the resale value of the contract. For some resorts, you may have paid as much as double the resale value. If you financed the entire purchase, there's a good chance that you're seriously underwater on the loan. Meaning, the amount you owe on the loan is more than you (or the bank) could get back from selling it. Potentially, thousands of dollars more. That's a big risk for the bank, and that's why they won't finance at a low interest rate.

Since you don't own a home and so don't have the option of a home equity loan, you have a few options that I can see.

1) Look around for a timeshare loan. Even if you only save a couple of points off the interest rate, at least it's something. Or...

2) Sell your contract, and purchase a resale contract - and don't finance it. You'll have to do the math on this one, and figure out whether the money you lose on the sale is more or less than what you'd lose by continuing to pay that super-high interest rate. If you can't afford to buy without financing, then just rent from other owners. Same vacation, without the long term financial commitment. Or...

3) Reduce the amount of interest you pay by paying the loan off as fast as you can. Make extra payments towards the principal every month.

 

[rufio]

OP, I'm sorry you're in this situation, but I'm afraid you're not going to be able to refinance that loan for a significantly lower rate.

A timeshare loan is not, from a bank's point of view, like a mortgage on a house. A house has some resale value, most timeshares have next to none. Many, if not most, banks, won't even finance a timeshare. If they do, you'll get a very high rate that's pretty much the same as what you got thru Disney.

If you don't pay your mortgage on your house, they can repossess the house, and hopefully sell it for something at or better than the amount left on the mortgage.

If you don't pay your timeshare loan, the bank takes your timeshare away - and in most cases, they'll only get a few bucks for selling it.

DVC is a little different and has some resale value, because Disney is currently propping up the resale value with ROFR. But….it's still a loser for the bank. Here's why:

I don't know which resort you bought, but unless it was VGF, it's very likely that by buying direct from Disney, you paid much more than the resale value of the contract. For some resorts, you may have paid as much as double the resale value. If you financed the entire purchase, there's a good chance that you're seriously underwater on the loan. Meaning, the amount you owe on the loan is more than you (or the bank) could get back from selling it. Potentially, thousands of dollars more. That's a big risk for the bank, and that's why they won't finance at a low interest rate.

Since you don't own a home and so don't have the option of a home equity loan, you have a few options that I can see.

1) Look around for a timeshare loan. Even if you only save a couple of points off the interest rate, at least it's something. Or...

2) Sell your contract, and purchase a resale contract - and don't finance it. You'll have to do the math on this one, and figure out whether the money you lose on the sale is more or less than what you'd lose by continuing to pay that super-high interest rate. If you can't afford to buy without financing, then just rent from other owners. Same vacation, without the long term financial commitment. Or...

3) Reduce the amount of interest you pay by paying the loan off as fast as you can. Make extra payments towards the principal every month.

Thank you for your reply! This makes a lot of sense and it's the first time anyone has explained it in such detail. We purchased at Bay Lake Tower about 2 and a half years ago. We have one loan to pay off (from our wedding) and once that is done we'll probably apply for another personal loan and just snowball both payments to get the DVC loan paid down early. It's unfortunate that we won't be able to refinance, but I'm sure we'll get it taken care of sooner than our payoff.

 

[tare]

Wow. That's a really high interest rate!!! Our home loan is 3.3%. How can disney get away with such a high rate.

 

[Nemo14]

Wow. That's a really high interest rate!!! Our home loan is 3.3%. How can disney get away with such a high rate.

It's explained pretty clearly in Lynne M's post. Basically it's not a home loan, but more like an unsecured loan, so the interest rate is going to be much higher than an ordinary mortgage.

 

[GoofGoof]

Wow. That's a really high interest rate!!! Our home loan is 3.3%. How can disney get away with such a high rate.

Same way the credit card companies do. People want credit, they are willing to pay it. Done deal.

 

[DVCOwner]

Wow. That's a really high interest rate!!! Our home loan is 3.3%. How can Disney get away with such a high rate.

I think GrofGrof has given the best example so far. As said earlier, any time share is an unsecured loan just like a credit card loan. So the interest is much higher than a home loan that is based on the value of the home on the resale market.