SAVING MONEY
An association can save money a couple of different ways through low interest loans. The first way is by refinancing your current association loan. It is a good time to review your current association loan terms and interest rate to see if a refinance makes sense for your community. A main advantage of refinancing is reducing the interest rate. A lower interest rate can have a profound effect on monthly payments, potentially saving the association hundreds to thousands of dollars a year. The second way you may be able to save money is by evaluating your current annual insurance premiums. An association could take out a line of credit to pay their annual insurance premiums for those insurance policies offering a discount for paying in advance, saving an association from costly insurance financing.
TYPES OF
ASSOCIATION LOANS Term loans are a type of loan where the funds are taken at loan closing and the monthly payment is fixed during the life of the loan. These types of loans are typically used for capital improvement projects, deferred maintenance, acquisition of a property that will become a common area, reserve replenishment initiatives, refinancing of existing loan(s), common area improvements and construction defect repair. Term loans are fully amortized and do not
have any balloon payments at maturity. Additionally, these loans terms could range anywhere from three to 15 years in length.
Non-revolving lines of credit, such as a construction line of credit, is a type of credit offering where associations would be required to pay interest on the borrowed balance. These non-revolving lines of credit are typically offered at a shorter term – averaging about 12 months – and would be converted to a term loan prior to, or at, maturity.
Emergency lines of credit are commonly used for disaster relief – especially where the association’s insurance will be reimbursing the association for damage. Instead of waiting for the insurance funds to arrive, this emergency line of credit allows associations to make any necessary repairs, then pay it down or pay off the loan once the claim has been paid. The borrower only pays interest while waiting for the insurance payment.
In emergency circumstances when insurance companies will not be involved, the association must provide a plan to pay off the line within 12 months – either by raising assessments, collecting a special assessment or utilizing reserve funds. The line of credit cannot be used to supplement a shortfall in operating expenses.
Once the association’s ability to enter into a loan agreement is confirmed, the association needs to determine what means will be used to repay the loan. For smaller loans, an
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10 | COMMON INTEREST®
• Winter 2020 • A Publication of CAI-Illinois Chapter
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