AOPA Turbine Pilot Magazine - June 2020 - T-4
TURBINE PILOT
FINANCE
Aviation finance content sponsored by
Aero-Space Reports
Monthly payments
Exploring four important loan variables
BY ADAM MEREDITH
FOUR IMPORTANT FACTORS influence the
T-4 |
monthly payment on an aircraft loan: the
down payment, amortization period, interest rate, and loan to value ratio (LTV).
Down payment. The bigger it is, the
smaller will be your monthly obligation.
Amortization period. The time over
which the loan is paid back in installments.
On a $1 million loan, extending the amortization from 15 to 20 years would save nearly
$16,000 in payments during the first year.
However, your loan balance at the end of the
year is approximately $16,000 higher.
Interest rate. For comparison, using
the same loan parameters, if the interest rate
dropped 20 percent, from 5 to 4 percent, you
would only save about $6,000 in payments
during the first year. However, reducing one's
interest rate by 20 percent results in interest
savings of almost $10,000 in the first year.
LTV. The ratio of the loan as a percentage of the total appraised value calculates
one's down payment. However, LTV also
determines what the amortization is, as
well as what other options might be available. With a strong enough LTV, an aircraft
owner can have essentially infinite amortization in the form of an "interest-only" loan
with a balloon payment due at the end.
Why choose the interest-only option?
Historically the most common reason is
to maximize a tax benefit, where there's a
known business use for the aircraft. Writing
off the depreciation of the aircraft and the
interest expense allows the owner to enjoy
a low monthly payment, business expense
President, AOPA Finance
deduction on the aircraft, and potential tax
deduction on the interest. However, in volatile stock market conditions (as currently
exist), another good reason for interest-only
loans, especially on owner-flown aircraft, is
to preserve cash flow and personal liquidity.
If the stock market generates an 8-percent
return and you can borrow at 4 percent,
borrowing on your aircraft instead of paying
cash can theoretically generate an additional 4-percent return.
AOPA
EMAIL adamanswers@aopa.org
aopafinance.com
800-62-PLANE (75263)
http://www.aopafinance.com
http://www.kingairacademy.com
http://info@kingairacademy.com
AOPA Turbine Pilot Magazine - June 2020
Table of Contents for the Digital Edition of AOPA Turbine Pilot Magazine - June 2020
Contents
AOPA Turbine Pilot Magazine - June 2020 - Intro
AOPA Turbine Pilot Magazine - June 2020 - Cover1
AOPA Turbine Pilot Magazine - June 2020 - Cover2
AOPA Turbine Pilot Magazine - June 2020 - Contents
AOPA Turbine Pilot Magazine - June 2020 - 2
AOPA Turbine Pilot Magazine - June 2020 - 3
AOPA Turbine Pilot Magazine - June 2020 - 4
AOPA Turbine Pilot Magazine - June 2020 - 5
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AOPA Turbine Pilot Magazine - June 2020 - T-1
AOPA Turbine Pilot Magazine - June 2020 - T-2
AOPA Turbine Pilot Magazine - June 2020 - T-3
AOPA Turbine Pilot Magazine - June 2020 - T-4
AOPA Turbine Pilot Magazine - June 2020 - T-5
AOPA Turbine Pilot Magazine - June 2020 - T-6
AOPA Turbine Pilot Magazine - June 2020 - T-7
AOPA Turbine Pilot Magazine - June 2020 - T-8
AOPA Turbine Pilot Magazine - June 2020 - T-9
AOPA Turbine Pilot Magazine - June 2020 - T-10
AOPA Turbine Pilot Magazine - June 2020 - T-11
AOPA Turbine Pilot Magazine - June 2020 - T-12
AOPA Turbine Pilot Magazine - June 2020 - T-13
AOPA Turbine Pilot Magazine - June 2020 - T-14
AOPA Turbine Pilot Magazine - June 2020 - T-15
AOPA Turbine Pilot Magazine - June 2020 - T-16
AOPA Turbine Pilot Magazine - June 2020 - T-17
AOPA Turbine Pilot Magazine - June 2020 - T-18
AOPA Turbine Pilot Magazine - June 2020 - T-19
AOPA Turbine Pilot Magazine - June 2020 - T-20
AOPA Turbine Pilot Magazine - June 2020 - 49
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AOPA Turbine Pilot Magazine - June 2020 - Cover3
AOPA Turbine Pilot Magazine - June 2020 - Cover4
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