The Price of Borrowing Money - DVC Direct Sales

[DonMacGregor]

At some point, the cost of borrowing money today has to impact on some level, DVC's ability to sell direct points. With today's .75% increase, the cost of borrowing money has increased by just under 4% in the last 10 months. I don't know what Disney's lowest interest rate is on direct purchases today, but back in February I think it was "down" around 9%.

You have to figure Jerome Powell is off Bill Dierkson's Christmas card list.

 

[BamaGuy44]

At some point, the cost of borrowing money today has to impact on some level, DVC's ability to sell direct points. With today's .75% increase, the cost of borrowing money has increased by just under 4% in the last 10 months. I don't know what Disney's lowest interest rate is on direct purchases today, but back in February I think it was "down" around 9%.

You have to figure Jerome Powell is off Bill Dierkson's Christmas card list.

It definitely changes the math. But in general, Americans aren't all that interest rate sensitive for this kind of purchase. Monera has no trouble finding takers for their credit card level rates. My prediction is it would take more of a hike than we've seen to have much impact.

IMO once most people have made the choice to take the big hit of finance charges, the rate doesn't move the needle that much.

 

[DonMacGregor]

It definitely changes the math. But in general, Americans aren't all that interest rate sensitive. Monera has no trouble finding takers for their credit card level rates. My prediction is it would take more of a hike than we've seen to have much impact.

At some point, it does become more sensitive though. In January, a $200k, 30 year mortgage would run you around $850 per month. Today, that loan is going to cost you nearly $1,500. Obviously, we're talking significantly smaller number here, but $100 or $200 more per month might scare off some who might be on the bubble.

 

[BamaGuy44]

At some point, it does become more sensitive though. In January, a $200k, 30 year mortgage would run you around $850 per month. Today, that loan is going to cost you nearly $1,500. Obviously, we're talking significantly smaller number here, but $100 or $200 more per month might scare off some who might be on the bubble.

There's a point, I don't think we're close to it though. For home mortgages, I think people are pretty sensitive to increases. But I think DVC is more of an impulse purchase for a lot of people. Very few people would borrow 200k at 12% or 16%, but it seems people do it on 30k pretty readily, at least for DVC.

Then again, I could just be talking out of my a**, as we say here in the South

 

[Stateman]

I had no idea folks were paying rates that high on a DVC purchase - that's nuts to pay on a non-essential item. And we love DVC...

 

[pianomanzano]

I thought their rate was a constant 9.9% or something like that for good credit (plus direct debit)? That's what we were quoted the couple times we were going back and forth on adding on points this spring when VGF2 started and RIV during the summer.

 

[BamaGuy44]

I thought their rate was a constant 9.9% or something like that for good credit (plus direct debit)? That's what we were quoted the couple times we were going back and forth on adding on points this spring when VGF2 started and RIV during the summer.

Right now that's the absolute minimum for Monera. And that's for 800+ credit score. My brother in law had literally 798 and they quoted him like 13.3 or something.

 

[Cfabar1]

I have friends who are DVC, own multiple contracts. They are pleased the financing is available. I personally just can’t justify it. I hate having to make that extra payment every month, and I hate even more the amount of money being spent on interest, especially for an item like DVC.

 

[Jack Kerouac]

When I looked at the DVC website, Disney offers financing at 10% - 18.01% financing. I cannot justify financing a vacation for the next ten years. We are working on buying a 220 point resale at the Poly at $149/point. The 40% off sale compared to buying Poly direct helped offset the sting of having to sell some investments at a loss. I guess the tax-write off come tax time will alleviate some of that sting though. Sure, the $35,000 (after closing costs and 2023 dues) we are spending is likely to cost us future investment gains, but financing that same amount would cost me $20,500 over the next ten years at Disney's lowest APR. Plus, I look at buying into the DVC as a way to invest in my family while my boys are young.

 

[BamaGuy44]

When I looked at the DVC website, Disney offers financing at 10% - 18.01% financing. I cannot justify financing a vacation for the next ten years. We are working on buying a 220 point resale at the Poly at $149/point. The 40% off sale compared to buying Poly direct helped offset the sting of having to sell some investments at a loss. I guess the tax-write off come tax time will alleviate some of that sting though. Sure, the $35,000 (after closing costs and 2023 dues) we are spending is likely to cost us future investment gains, but financing that same amount would cost me $20,500 over the next ten years at Disney's lowest APR. Plus, I look at buying into the DVC as a way to invest in my family while my boys are young.

Last year at this time is when we bought in. Interest rates were rock bottom and the market was rolling along. Wasn't too hard to justify borrowing short term at 4% vs pulling money out of investments. Now it's the exact opposite.

10% (or more) for 10 years? People do it all the time, but one of those people will not be me.

Of course, if I had a crystal ball, pulling the money out last year actually would have been genius lol. But if I had a market timing crystal ball I wouldn't need DVC, I'd have my mansion in Golden Oak when I needed a break from my other homes

 

[Stateman]

Certainly not judging people’s financial situations. We’ve certainly seen our share of financial challenges over the years that required going without, but paying double digit interest rates for vacation(s) is hard to recommend.

 

[Jwaire]

10% (or more) for 10 years? People do it all the time, but one of those people will not be me.

This argument is so tired. You don't HAVE to finance for 10 years. There's no pre-payment penalty. Guess what? The interest rate doesn't much matter when you pay it off within a year or two. In some cases, you likely saved money because of early buy in incentives and price hikes.

Even if you bought SSR resale back when it was $80 a point in 2019, even with a 10% interest rate, you did OK.

Just pay it off early.

 

[Jack Kerouac]

This argument is so tired. You don't HAVE to finance for 10 years. There's no pre-payment penalty. Guess what? The interest rate doesn't much matter when you pay it off within a year or two. In some cases, you likely saved money because of early buy in incentives and price hikes.

Even if you bought SSR resale back when it was $80 a point in 2019, even with a 10% interest rate, you did OK.

Just pay it off early.

Yes, that is always an option, but I’m guessing that most who finance for ten years have other loans as well, making prepayment less likely/more difficult. I would like to hear from a place like Monera how many loans are prepaid and how many are paid off on schedule.

 

[Jack Kerouac]

Last year at this time is when we bought in. Interest rates were rock bottom and the market was rolling along. Wasn't too hard to justify borrowing short term at 4% vs pulling money out of investments. Now it's the exact opposite.

10% (or more) for 10 years? People do it all the time, but one of those people will not be me.

Of course, if I had a crystal ball, pulling the money out last year actually would have been genius lol. But if I had a market timing crystal ball I wouldn't need DVC, I'd have my mansion in Golden Oak when I needed a break from my other homes

The days of easy money (market returns and financing) seem to be over for the foreseeable future.

 

[Jwaire]

Yes, that is always an option, but I’m guessing that most who finance for ten years have other loans as well, making prepayment less likely/more difficult. I would like to hear from a place like Monera how many loans are prepaid and how many are paid off on schedule.

They'll never tell. However, I bet a lot more are paid early than you would think because they are constantly dropping loan releases on the OC Comptroller page in bulk.

 

[BamaGuy44]

This argument is so tired. You don't HAVE to finance for 10 years. There's no pre-payment penalty. Guess what? The interest rate doesn't much matter when you pay it off within a year or two. In some cases, you likely saved money because of early buy in incentives and price hikes.

Even if you bought SSR resale back when it was $80 a point in 2019, even with a 10% interest rate, you did OK.

Just pay it off early.

I didn't make the argument you seem to think I'm making. Literally the sentence before this I talked about borrowing short term at 4%. Not saying nobody should borrow ever for DVC, I did it myself as I said. I was saying there are better options so we're saying the same thing basically.

 

[BamaGuy44]

The days of easy money (market returns and financing) seem to be over for the foreseeable future.

No doubt. These 2 and 3% mortgage rates are basically unheard of historically. And we're coming off one of the all time bull markets. It was a good run while it lasted , here's hoping the corrections don't swing too far the other way.

 

[DonMacGregor]

Last year at this time is when we bought in. Interest rates were rock bottom and the market was rolling along. Wasn't too hard to justify borrowing short term at 4% vs pulling money out of investments. Now it's the exact opposite.

10% (or more) for 10 years? People do it all the time, but one of those people will not be me.

Of course, if I had a crystal ball, pulling the money out last year actually would have been genius lol. But if I had a market timing crystal ball I wouldn't need DVC, I'd have my mansion in Golden Oak when I needed a break from my other homes

I bought my first direct contract, 150 points at SSR, with some cash out from a refi (only enough to buy the contract). I had a boatload of equity in the house, and was still sitting on my 6% loan from way back in 2004. When the 30-year fixed got down to 2.75%, I refi'd, pulled some cash out (around 5% with 40% equity remaining), and still reduced my monthly payment by almost $600. Yes, I "lost" 15 years of payment towards the original 30-year paper, but the equity is still there and I was never going to stay in the house another 15 years anyway (does anyone anymore?). I look at that first contract as "free".

 

[Nursemanit]

You can get personal loans for 3 years under 6% ( lower than the current mortgage rates)

That is better than selling index funds that are 18% down. Plus you don't have the points encumbered with the loan so you could sell uncomplicated by the loan.

Now if points go up over the same three years ( like the $ 10-a-point rumor) - the interest paid will most likely be negligible vs "saving up" over 3 years and paying the 2026 direct price.

Resale is, of course, totally different math.

 

[Jack Kerouac]

You can get personal loans for 3 years under 6% ( lower than the current mortgage rates)

That is better than selling index funds that are 18% down. Plus you don't have the points encumbered with the loan so you could sell uncomplicated by the loan.

Now if points go up over the same three years ( like the $ 10-a-point rumor) - the interest paid will most likely be negligible vs "saving up" over 3 years and paying the 2026 direct price.

Resale is, of course, totally different math.

You make a good point. For me personally, my wife and I have a good savings rate, and I am a value investor, so none of my investments that I sold were down 18%. It still stings, as I would rather have sold when the market was at or near the top. But I too don’t have a crystal ball and when the market is ripping, it’s hard to be a seller. The 40% sale price compared to Disney direct helps me feel like I’m able to buy the dip on the DVC. So it’s a trade off that I’m comfortable with and doesn’t compromise our financial future.