Increasing prices vs. interest rates

[Bjaiken77]

I’m just trying to figure out what is the lesser of two evils. I’ve paid cash based on the preached wisdom of “paying interest defeats the savings,” but I’m wondering if it does at the way prices are increasing. I hate paying interest in principle, but I can certainly afford a reasonable monthly payment with interest. I’d prefer to wait until I have the money saved up for my next contract (again, I have some disposable income), but I’m beginning to wonder if it’s not more wise to lock in the price and pay the interest. Is that cheaper than waiting a year or two and paying in cash once the prices go up? I know there are a number of variables, but I was curious about everyone’s thoughts. I also know this question has been asked at different times, so I apologize for asking for input again. Thanks!

 

[DVCsloth]

I’m just trying to figure out what is the lesser of two evils. I’ve paid cash based on the preached wisdom of “paying interest defeats the savings,” but I’m wondering if it does at the way prices are increasing. I hate paying interest in principle, but I can certainly afford a reasonable monthly payment with interest. I’d prefer to wait until I have the money saved up for my next contract (again, I have some disposable income), but I’m beginning to wonder if it’s not more wise to lock in the price and pay the interest. Is that cheaper than waiting a year or two and paying in cash once the prices go up? I know there are a number of variables, but I was curious about everyone’s thoughts. I also know this question has been asked at different times, so I apologize for asking for input again. Thanks!

Probably cheaper to wait, but not as much fun!

 

[Bjaiken77]

Well, the other thing is these restrictions. Some of the best direct values are always with the new resorts when you factor in incentives and the number of years. However, I like an exit strategy, and the resale restrictions at Riviera scare me personally.

Even if I add on resale - the prices on some of the resorts with 40 plus years are climbing quickly (save maybe CCV).

 

[UrsulaWantsYourSoul]

If you're paying for cash rooms now, that's a lot of money that could be interest instead.
Kinda like renting an apartment - at the end of the month you own nothing.
Mortgage - sure there's interest but you're paying toward something you'll own at the end.
And have all those juicy points along the way.
But yeah - crunch the numbers (and everyone feels differently about debt / interest).
Lots of ways to fund the loans too - some with decent interest rates (home equity / home equity line of credit / personal loan/line of credit) and can push yourself to do a shorter term to get that puppy paid off sooner than later.
Then there's always the incentives question of do I bump up to the next level of points or not for that savings.
Ignore credit naysayers and do what's right for you, your budget and your Disney happiness - you do you, Boo.

 

[4luv2cdisney]

I’m just trying to figure out what is the lesser of two evils. I’ve paid cash based on the preached wisdom of “paying interest defeats the savings,” but I’m wondering if it does at the way prices are increasing. I hate paying interest in principle, but I can certainly afford a reasonable monthly payment with interest. I’d prefer to wait until I have the money saved up for my next contract (again, I have some disposable income), but I’m beginning to wonder if it’s not more wise to lock in the price and pay the interest. Is that cheaper than waiting a year or two and paying in cash once the prices go up? I know there are a number of variables, but I was curious about everyone’s thoughts. I also know this question has been asked at different times, so I apologize for asking for input again. Thanks!

If you're talking about a year or two and you're sure you want to buy, I wouldn't wait. I am consistently getting 18 month 0% interest offers with a 2% transfer fee from some of my credit cards.

Put down what you can, only buy what you are confident you can pay off in 18 months.

If you are buying direct, put it on a Chase Disney Visa first for 6 months at 0% and then transfer - giving you 2 full years and the least amount at the 2% fee.

I am a anti-debt person, but I use credit a lot. And I don't really consider something you already have the money for or will in 12 months (ish) debt. But I also have sufficient emergency funds in case the plan goes south.

 

[wvujeb]

I considered the same thing when I was debating whether to purchase or wait. I'm planning on paying off the loan in less than 2 years. With the way that prices are increasing, I estimated it would only cost me a few hundred dollars more in interest than if I waited to purchase in 2 years. A few hundred dollars seemed well worth the added 2 years of DVC.

 

[MICKIMINI]

Why not consider buying a smaller amount of points with cash on hand? You can then purchase more as you accumulate more cash. Locking in a price is an effective sales tactic to get people to spend more on a house, car, vacation, etc. If your goal is to buy and pay cash, follow through with your gut feeling and congratulations on paying cash!

If something happens along the way you could be stuck paying high interest for a long time...I watched it happen after the housing crash. People were doing a lot of speculating and things collapsed like a house of cards. Folks lost cars and houses and had to start from scratch. The overall loss of wealth was staggering. It was a terrible time.

We're in the debt free camp. Once you get "there", it's easy to stay there. I only use CC's to attain points/cash back. We own six contracts the highest 150 and lowest 25. When we have extra cash, we buy another contract. If we ever need to sell, smallish contracts go quickly giving us an offramp. JMO! Good luck!

 

[Ruttangel]

I’m just trying to figure out what is the lesser of two evils. I’ve paid cash based on the preached wisdom of “paying interest defeats the savings,” but I’m wondering if it does at the way prices are increasing. I hate paying interest in principle, but I can certainly afford a reasonable monthly payment with interest. I’d prefer to wait until I have the money saved up for my next contract (again, I have some disposable income), but I’m beginning to wonder if it’s not more wise to lock in the price and pay the interest. Is that cheaper than waiting a year or two and paying in cash once the prices go up? I know there are a number of variables, but I was curious about everyone’s thoughts. I also know this question has been asked at different times, so I apologize for asking for input again. Thanks!

I think you have received some good advice, just wanted to add that it will depend on the resort.
If you want RIV then we know the direct incentives are reducing on 7th April.
If you are talking about a resale at BRV then those prices are fairly steady and no rush needed.

 

[Bobby2443]

I think there are a lot of factors including the mortgage is open so it can be paid off in full at any point without penalty, how you earn your money can have tax implications (eg if you run your own business and "pay yourself" from that business then you might take on more taxable income and therefore higher taxes versus the amount of interest you would pay). And if you don't live in the US then there are currency implications. I'm Canadian and since I bought my first contract a year go our currency has appreciated significantly against the USD so from that standpoint I"m happy I didn't pay cash and financed it

 

[Bjaiken77]

Thanks for all the advice. I just bought 325 points resale and spent about $40K doing it. So I have a decent amount of starter points. However, $40K was what I felt comfortable spending out of pocket, and, of course, long-term investments are off limits. However, as you get into this DVC ecosystem, you try to predict what you will use and where the market is going. Also, I don’t have my blue card, which is not the end of the world, but I consider it as I’ve watched minimums raise over time. That’s why I’ve considered taking a loan rather than saving up again. Because some of these prices/required minimums would have been better if I had bought earlier. Again, thanks for all the tips.

 

[Matty B13]

Also, I don’t have my blue card, which is not the end of the world, but I consider it as I’ve watched minimums raise over time. That’s why I’ve considered taking a loan rather than saving up again. Because some of these prices/required minimums would have been better if I had bought earlier. Again, thanks for all the tips.

I think we might be at the top level for blue card benefits at 125 points, with that amount of points most people can stay in a studio for 5 to 7 days anytime of the year.

 

[Tattylou]

Well I know my cousin bought direct Poly in 2017 on a whim while at Disney. She financed it and paid about 160 or 170 per point (I’m not exactly sure) and got blue card benefits before the minimum went up. I wish I bought then even if it would have been finance.
Now I’m looking and looking and looking at dvc and reading these boards and wanting to buy, but thinking it all over. I like @MICKIMINI idea and have thought of it myself bc I have cash on hand (especially now with the stimulus) for a small 50 point contract to get my foot in the door, but I feel like I need at least 100 to really do it how I want to.... but I don’t have cash for 100 points bc I have other projects I need to do: so here I am contemplating the same as you as far as finance, increasing prices etc

 

[Bjaiken77]

Well I know my cousin bought direct Poly in 2017 on a whim while at Disney. She financed it and paid about 160 or 170 per point (I’m not exactly sure) and got blue card benefits before the minimum went up. I wish I bought then even if it would have been finance.
Now I’m looking and looking and looking at dvc and reading these boards and wanting to buy, but thinking it all over. I like @MICKIMINI idea and have thought of it myself bc I have cash on hand (especially now with the stimulus) for a small 50 point contract to get my foot in the door, but I feel like I need at least 100 to really do it how I want to.... but I don’t have cash for 100 points bc I have other projects I need to do: so here I am contemplating the same as you as far as finance, increasing prices etc

yeah, this is my exact dilemma. Does paying interest and locking in a good contract at a lower rate make more financial sense than waiting to pay in cash but prices have climbed? I may take a crack at adding some smaller 50 point contracts as suggested. I can pay those off quicker.

 

[Spinster Travel]

yeah, this is my exact dilemma. Does paying interest and locking in a good contract at a lower rate make more financial sense than waiting to pay in cash but prices have climbed? I may take a crack at adding some smaller 50 point contracts as suggested. I can pay those off quicker.

Taking on the smaller contracts is exactly what I am doing. I bought Poly resale for my starter points and then added on a 25 point Direct contract on my Disney Visa at 0% for six months and paid it off pretty quickly. My plan is to continue to do that until I get to 125 total direct points....hopefully the trend of Disney increasing the minimum does not continue each fall like it has the last two years; if it does, I might have to bite the bullet and get the rest of my remaining points for direct all at once, which is not what I really want to do, but 125 Direct on top of my existing resale purchase is right at what I want point wise. I also like that my inventory of small contracts allows me to easily sell them should I find that I want or need to. Good luck!

 

[Turn the Page]

If you're paying for cash rooms now, that's a lot of money that could be interest instead.
Kinda like renting an apartment - at the end of the month you own nothing.
Mortgage - sure there's interest but you're paying toward something you'll own at the end.
And have all those juicy points along the way.
But yeah - crunch the numbers (and everyone feels differently about debt / interest).
Lots of ways to fund the loans too - some with decent interest rates (home equity / home equity line of credit / personal loan/line of credit) and can push yourself to do a shorter term to get that puppy paid off sooner than later.
Then there's always the incentives question of do I bump up to the next level of points or not for that savings.
Ignore credit naysayers and do what's right for you, your budget and your Disney happiness - you do you, Boo.

This is what we landed on. We had decided a few years ago we wanted to join and we're waiting for RIV to open and get some scratch together. Finally, after the god awful past year (that was actually a financial boom for us) I told DH that we had approximately 40% to put down on a contract and that I didn't want to go again until we joined as it would feel like throw away money we could have used to purchase our contract. So that's what we did.

It's not ideal, of course, but we will have it paid off in about 2 years and the I Teresa we pay will be less that a cash rate for our 1 bedroom at RIV this summer so whatever.

 

[smsharp]

Taking on the smaller contracts is exactly what I am doing. I bought Poly resale for my starter points and then added on a 25 point Direct contract on my Disney Visa at 0% for six months and paid it off pretty quickly. My plan is to continue to do that until I get to 125 total direct points....hopefully the trend of Disney increasing the minimum does not continue each fall like it has the last two years; if it does, I might have to bite the bullet and get the rest of my remaining points for direct all at once, which is not what I really want to do, but 125 Direct on top of my existing resale purchase is right at what I want point wise. I also like that my inventory of small contracts allows me to easily sell them should I find that I want or need to. Good luck!

This is exactly my plan if I see I want more points than my starter points!

 

[Dyefrog]

I think there are a lot of factors including the mortgage is open so it can be paid off in full at any point without penalty, how you earn your money can have tax implications (eg if you run your own business and "pay yourself" from that business then you might take on more taxable income and therefore higher taxes versus the amount of interest you would pay). And if you don't live in the US then there are currency implications. I'm Canadian and since I bought my first contract a year go our currency has appreciated significantly against the USD so from that standpoint I"m happy I didn't pay cash and financed it

Greetings all, new member and soon to be DVC "homeowner" hopefully.
Bobby2443 touches on important financial considerations not to be ignored. Excellent point on using funds that may bump you into a higher tax bracket such as taking capital gains to pay off the mortgage. Even though the tax rates are progressive, it is a factor.

I've done all the analytical (and I put the anal in analytical) spreadsheet stuff and looked at true costs while factoring in lost potential investment gains of a lump sum cash purchase. While not guaranteed, they do have a proven track record. For example, even if you invested that $20k-$40k in DIS 5 years ago vs paying in full, you would have earned more (10/1/16-$92.69, 3/19/21-$191.14) than the 10% interest you would have paid Mickey. Just buying an index fund tracking the S&P 500 would have returned ~12% annually (accounting for inflation and dividend) for the past 10 years.
An example on $40k at 10% for 10 years would return $108k total cost of DVC. But $40k invested in S&P 500 at 12% would return $132k in earnings.

So while I've always been more prone to paying cash in full for most things, it's really better suited to a depreciating asset of which historically, DVC AFAIK is not. I've had much better success investing in the stock market and will continue to do so with the cash if I can finance for less than 10%. As others mentioned, there's plenty of lending opportunities to get that closer to 6%. If you have no interest in investing the money and it's just stuffed in your mattress, by all means, pay in full.
The other factor that recently could come into play is potential inflation due to the stimulus program. That is what primarily has pushed me over to the other side from being a wannabe to an owner. NOT ADVICE