HOA Money transfer to lower loan %

Several years ago our community was connected to county water including remote reading meters to every home. We had been on well water. Ugh. We had elected a new President who had 40 years banking experience. He petitioned County Utilities Commission to lower our interest rate which would lesson the burden of paying the loan. After 3 meetings with the Utilities Board, they offered to lower the interest from 5% to 3.75% if we would pay 10% of the remaining loan first.

Here's the problem: Our monthly maintenance fee was raised by $15.00 a month a few months ago. It just so happened that that increase (left in a separate account) was $32,000. We owed the County Utilities $320,000. So the President did the math using the amortization tables and determined we could save an additional $85,000 over the life of the loan. The current interest of the $32,000 account is 0.01 and earns about $8.00 a month. When the President brought the offer to the Board meeting there great hesitation. The Board finally said that the transfer of the $32,000 would require membership majority approval.

I can find nothing in all of our governing documents that requires a membership vote for this issue. This would be a good thing for our community and would I like other opinions.

Am I missing something in the math? Seems the math I did that at 5% interest the overall loan on $320,000 would be around 16K. The lowering to .375 is just a 4K difference. Your still paying 32K out of pocket. The 10% down just lowers the amount owed to 288K then at 3.75% then that is paying 10,800 interest but that is still paying 32K out. How long is this loan stretched out for? Seems you may want to change the length versus the interest in this case if possible. I would consider paying the loan down and lessening the length.

I don't have a problem with putting this up to the membership to vote. It is their money. Board is doing the right thing by consulting the rest of the members to get feedback on something this large. It falls in the lines of a special assessment situation to me.

Glenn,

If the separate account is for your Reserves (as you stated the monthly maintenance fee (assessment) was increased) then that money should be for reserve components.

You may borrow from Reserves, but need a plan to pay the money back into the reserves.

The existing rate on our water bill loan is 7%. After many meetings with the county commissioners we were approved for a rate reduction to 5.75% with a principle reduction of of 10% These negotiations had the approval of the board for me to move forward.It was my contention that we as a board could transfer the 10% (32,000) from a certificate that is not in the operating budget that is currently earning us approximately 6.78 per month to reduce the loan which would save the park over the remaining 12 years $80,000! When it came down to the vote,it was 5 to 1 to take it to the members of which quite a few are back up north which means developing ballots, mailings, etc. In my attempt to show the board the savings I did two amortization schedules ( one at 7% and one at 5.75%) which showed the savings of $80,000. Like Glenn mentioned in an earlier response I saw nothing in our bylaws that stated we needed to go to the membership for an approval. Totally frustrated.
Chuck

Since the funds are not part of the Reserves, I agree with others who say that, unless your governing documents require it, membership approval is not required.

However, there is nothing that prevents the Board from bringing the issue to the members.

Therefore, it's the Boards decision.

Hi Charles,

This is a good deal for your community and real money-saver if painful with that upfront down payment as a condition of refinancing. Take the $6,666 in annual interest savings and double-down on the principal to save EVEN MORE on interest to the bank.

Interest expenses kill HOA budgets. I hate them as a long-time president but understand that loans can be a necessary evil in rare cases.