The POA has now conducted two community center project proposals, one which was rejected by the membership and one that was approved by members but not approved by the lender. Each proposal indicated strong community support, the first with a 60% member approval and the second with 82% voting yes. Based on these outcomes the POA continues to seek a proposal that two thirds of members will ratify.

After much research, it appears likely that only commercial business financing will be available for this project, that is, a balloon style loan. A balloon loan works like this: The bank amortizes the amount you want to borrow over 10, 15 or 20 years, that is, your principal and interest payments are calculated as if you were paying back the loan over 10, 15 or 20 years. Obviously, the shorter the amortization period, the more principal you have to pay back each year and the higher your payment. But the amortization period does not mean you have 10, 15 or 20 years to pay back the loan. The bank only gives you typically 3 or 5 years to repay. If you elect a 5 year loan, you will make payments of principal and interest calculated on the 10, 15 or 20 year amortization period, but at the end of your 5 years, the balance remaining on your loan comes due. At that time you can either pay off the balance or renegotiate another 3 or 5 year loan, once again, based on a 10, 15 or 20 year amortization period using the remaining balance you owe to calculate your payments. These loans do not have a guaranteed interest rate that applies over a long period like a conventional fixed rate home loan. You may elect a fixed rate for the 3 or 5 years term of the loan, but when the balance comes due and you renegotiate another 3 or 5 years loan, the prevailing market rate will be applied the next 3 or 5 year period. Balloon loans are not risky like some ARM home mortgages that offer very low introductory (below market) rates and then accelerate well above market rates in future years.

The community center proposal that only garnered 60% member approval in 2009 involved a BB&T balloon loan. That proposal was turned down for 2 main reasons: 1) the economy 2) the assessment cost ($440 - $480 per year for 15 years).

We can’t finance a community center without assessments. The key is finding a plan that minimizes the assessment amount and the loan risk. One way to do this is to begin assessments 2-3 years prior to negotiating a loan, accumulating a large down payment, and reducing the amount we would have to finance. The upside is by financing less and having a large down payment, we will be able to negotiate very good terms, while paying less interest over the loan term because we borrowed less. The downside is waiting 2 or 3 years before we start.

The board is still working on a proposal to bring to the community, but it is expected we will begin communicating a new plan in the second half of this year.