Refinancing a timeshare: What are the options?
The basics of a timeshare refinance
- Timeshare refinances are difficult, as lenders are wary of the property’s depreciating value.
- Borrowers should consider prepayment penalties, fees and tax deductions on their existing loan before refinancing.
- Alternatives to refinancing include paying off the timeshare loan with a home equity loan, HELOC or personal loan.
Nearly all loan types can be refinanced, or replaced by a new loan that typically has a different repayment term, amount and interest rate. Timeshare loans are also eligible for refinancing, although it can be difficult to find a willing lender.
Timeshare providers often have their own loan programs for people who cannot purchase the property with cash alone. If you use the timeshare’s lender, however, you may be paying a much higher interest rate — 20 percent is not unheard of, for example — than you could get through a traditional bank or alternative, online lender.
So, what can you do if your timeshare loan isn’t financially feasible and you either can’t or don’t wish to sell the property?
Questions to ask
The average sales price of a timeshare property is $22,240 and the average annual maintenance fee is $880, according to the National Timeshare Owners Association. Refinancing a timeshare loan can save several thousand dollars. Based on a loan amount of $20,000 with a six-year term, you could save $4,500 to $6,000 if you secure an interest-rate reduction of 6 percent to 8 percent.
Before locking up a new loan, however, compare it to your existing loan. Does your current loan have a prepayment penalty? Does the loan you want to refinance into have a penalty, and does it include any origination or transfer fees? All of these costs can reduce the amount you’ll save.
Tax deductions are another consideration. If the loan is secured, meaning the timeshare property serves as collateral, the interest payments are eligible for federal tax deductions. Alternatively, if you use a home equity loan or home equity line of credit (HELOC) to pay off the timeshare loan, the interest paid on them is also tax-deductible.
Keep in mind that you can only deduct interest on your primary residence and one additional property. If you own a vacation home and a timeshare, for example, you’ll have to choose one for tax-deduction purposes. The annual maintenance fees, any special assessments and the closing costs on your timeshare are ineligible for deductions. But you may be able to claim property taxes, if they’re billed directly to you or listed as a separate expense on your maintenance statements.
Timeshare loans can be difficult to obtain. Lenders may shy away from them because timeshares often make poor collateral. They depreciate or lose value quickly, so a bank or credit union may not be able to recoup the loan amount if the borrower defaults.
There are lenders, however, that will finance and refinance loans on timeshare properties anywhere in the world, as long as you’re a U.S. resident. You may be able to get anywhere from $5,000 to $100,000 and the money may be available the same day your loan is approved. The loan may range from two to seven years, perhaps longer, with interest rates in the neighborhood of 6 percent to 15 percent, depending on the term and loan amount. The lender may wave origination fees and prepayment penalties.
If you cannot refinance your timeshare and you do not wish to keep it, there are companies that will help you transfer the title to a new owner and remove all future liability for loan payments. If you have an existing loan, it’s possible you may have grounds to terminate the contract with your timeshare provider. Grounds for termination include false claims of tax benefits; hidden fees or limitations with exchanging or redeeming your points in a points-club structure; or failing to inform the buyer of the three-day right-of-rescission period that exists in many states.
There are alternatives to refinancing a timeshare loan that could save you money in the long run by lowering your interest payments. These include home equity loans, HELOCs, personal loans and even low-interest, credit-card balance transfers. A personal loan may be a good option since it’s unsecured, so you won’t risk losing your home if you default.