Do Bonds Equal Credit Card Debt?

[KEVIN & JOSIE]

I was reviewing new home bonds at 30K plus range and at interest rates between 3 and 5 percent. It feels like with your new home purchase you accept this bad debt. Can you explain another way of looking at it? Thanks

[retiredguy123]

The $30K is to pay for the infrastructure needed for the house. If you consider debt to be bad, then, yes it is bad debt and you have to accept it. But, you can pay it off anytime you want. If you buy a new house without a bond, you are still paying for the infrastructure, but it is built in to the price of the house or included in your taxes.

[VApeople]

Can you explain another way of looking at it?

No.

As I understand it, every new house comes with this debt.

[Goldwingnut]

The bond on your home, while a debt that you owe, is not reflected on your credit report. It is not a "bad" debt as in high risk or in default, it is just a part of the cost of a home in a new development. As retiredguy123 has said, you will be paying this no matter what, it's just a matter of it being rolled into the cost of the home or not. If you view debt as a bad thing, as I do, then yes it would be bad and it should be paid off as soon as you can. "...the borrower is slave to the lender..." Provers 22:7

[Stu from NYC]

The problem with paying off the bond early is that if you decide to sell your home the prevailing wisdom you will not get more for your house since you have no bond.

[John41]

I was reviewing new home bonds at 30K plus range and at interest rates between 3 and 5 percent. It feels like with your new home purchase you accept this bad debt. Can you explain another way of looking at it? Thanks

The difference if you sell your house...
Your Bond debt goes to the buyer
Your Credit card debt stays with you

[KEVIN & JOSIE]

The bond on your home, while a debt that you owe, is not reflected on your credit report. It is not a "bad" debt as in high risk or in default, it is just a part of the cost of a home in a new development. As retiredguy123 has said, you will be paying this no matter what, it's just a matter of it being rolled into the cost of the home or not. If you view debt as a bad thing, as I do, then yes it would be bad and it should be paid off as soon as you can. "...the borrower is slave to the lender..." Provers 22:7
Is there a reason the bonds are separate from the house cost? At least if you had a mortgage it would be deductible.

[retiredguy123]

Is there a reason the bonds are separate from the house cost? At least if you had a mortgage it would be deductible.
Yes. The bond is based on the total cost for the infrastructure for a particular area of construction. Every house of the same type (designer, villa, etc.) constructed within that area will be assessed the same bond amount regardless of the size or price of the house. So, a $500K designer house will have the same bond amount as a $350K designer house. The bond interest is not tax deductible because it is not based on the value of the house. The IRS only allows tax deductions for mortgage loans that are based on the value of the house. And, obviously, by not including the infrastructure cost in the price of the house makes it easier to sell the houses, and easier to get mortgages.

[tophcfa]

I was reviewing new home bonds at 30K plus range and at interest rates between 3 and 5 percent. It feels like with your new home purchase you accept this bad debt. Can you explain another way of looking at it? Thanks

Call it what you want, it's the cost of the home. That is one of the reasons we bought in the northern part of the Villages, where our bond was already paid off.

[Goldwingnut]

Is there a reason the bonds are separate from the house cost? At least if you had a mortgage it would be deductible.

From a business standpoint it is a huge positive cash flow advantage. Consider that the infrastructure work starts up to 2 years prior to the sale of the first house. With a bond the CDD pays for the infrastructure as it is built, the developer gets paid for this work instead of having to carry the cost for up to 2 years before they START to get paid. If the cost is rolled into the house then it takes until the last house is sold before they fully recoup the infrastructure investment (it actually would happen sooner but at the cost of a reduced profit margin, if any, per house).

Many developers go under because of the carry time for the development costs.

The other advantage for us as residents deals with capital availability. The developer only has so much in the budget to develop the community, by not having to carry the cost of streets and sewer pipes they can invest the money in other things like swimming pools, golf courses, rec centers. This is way in many communities the sales pitch is that "that will be the pool over there" or "you'll be on the tee box for the 3rd hole" but it never happens, they run out of money.


You'll pay the cost one way or the other.

The bond process is, in my opinion, one of the key reasons that The Villages is successful. Allowing the early building of the amenities. Believe it or not, the amenities are still being built in advance of the homes as they always have been. What many think of as amenities (shopping, championship golf) are not amenities, they are private businesses. These have to make a profit to survive and have to wait for the homes to be occupied before being built. The non-linear and fragmented development of the area south of SR44 has made this much more difficult than the contiguous linear building that allowed commercial development along 466 and 466a.

This video Bond Information and The Villages 5-30-19 Construction update - YouTube (https://youtu.be/nGwf7AcmyEI) talks about the bonds here in The Villages.

[Goldwingnut]

Is there a reason the bonds are separate from the house cost? At least if you had a mortgage it would be deductible.

Being "tax deductible" is a story the banks like to tell you, so you'll pay them $10,000 in interest each year just so you don't pay the government $1,000 in taxes each year. While I think the banks are smarter with their money than the politicians are with our money, I'll still take the lesser amount.

[egmcaninch]

No.

As I understand it, every new house comes with this debt.

A bond is a cost, just like the price of the house is a cost. Either one becomes a "debt" when you choose to finance it. In my former home state, the development cost was folded into the cost of the home. By keeping it separate, you actually lower your property tax by the amount of the bond.

[jwonycr]

Yes. The bond is based on the total cost for the infrastructure for a particular area of construction. Every house of the same type (designer, villa, etc.) constructed within that area will be assessed the same bond amount regardless of the size or price of the house. So, a $500K designer house will have the same bond amount as a $350K designer house. The bond interest is not tax deductible because it is not based on the value of the house. The IRS only allows tax deductions for mortgage loans that are based on the value of the house. And, obviously, by not including the infrastructure cost in the price of the house makes it easier to sell the houses, and easier to get mortgages.

There are two parts commonly called "bond" which come with your tax bill. There is bond maintenance, which pays for upkeep of the common areas in your CDD -- mowing, replanting of flowers, etc. This is non-deductible. Then there is the capital bond, which paid for the infrastructure early in the construction and development. Interest on the capital bond IS tax deductible (just as it would be if the developer had rolled the infrastructure cost into the price of your house) assuming you itemize. You can go to Village Community Development Districts (http://www.districtgov.org) and look up the amount of your bond and the interest rate you are paying.

[jwonycr]

Yes. The bond is based on the total cost for the infrastructure for a particular area of construction. Every house of the same type (designer, villa, etc.) constructed within that area will be assessed the same bond amount regardless of the size or price of the house. So, a $500K designer house will have the same bond amount as a $350K designer house. The bond interest is not tax deductible because it is not based on the value of the house. The IRS only allows tax deductions for mortgage loans that are based on the value of the house. And, obviously, by not including the infrastructure cost in the price of the house makes it easier to sell the houses, and easier to get mortgages.

There are two items on your tax bill commonly called "bond." One is the maintenance bond, assessed annually by your CDD, which pays for upkeep of the common areas. This part is not tax deductible. The other is the capital bond, which paid for the streets, sewers, lighting, etc, early in the development process. As pointed out above, this cost could have been rolled into the price of the house, so interest on this debt is properly considered interest on a portion of the cost of the house, which is tax deductible assuming you itemize. You can go to the VCCDD web site and look up the amount of the capital bond, the yearly amount allocated to interest and to capital payoff, and the interest rate, to decide whether it makes sense to pay off the bond early.

[algi45]

But it makes your house easier to sell. No bond is a big plus.

[ficoguy]

Correct. It’s is priced in to the sakes price. You can’t get $20k more for your house even if you paid off a $25k bond. If you can earn more than the interest on the bond then don’t pay it off

[Tomptomp]

If the bond payment were included in the purchase price of the house then the assessed taxes would be higher. Debt is debt. It doesn’t really matter who gets your money. By separating the two your not being taxed on the bond.

[mrf6969]

I believe The Villages separates the infrastructure cost solely to make the price of the home seem more attractive. Of course in reality when you buy a new home today at say $460,000. the real price of that home is $500,000 with the $40,000 bond added to it plus the interest on the bond.

[diva1]

The problem with paying off the bond early is that if you decide to sell your home the prevailing wisdom you will not get more for your house since you have no bond.

I'm not so sure about that. Why do the realtors always advertise "No Bond" with the house they are selling? It is a desirable feature.

[DecaturFargo]

Poppycock. The developer foist their responsibility on the homeowner, and since they own Citizens First, for those who have loans with them. They're making 3, 4, 5% interest.

[RobertWR]

We paid our bond off. At 5.7% it's an expense that did not make sense. I believe our home is worth that amount more the day we decide to sell.

When looking at homes to buy 2 years ago we did look to see if the bond was paid or not. Our home is south of 466A.

It is an individual decision.

[Mohawksin]

No.

As I understand it, every new house comes with this debt.

New and as each time the home sells until the bond is paid off.

[NY2TV]

Mortgage interest rates are currently lower than the typical bond rates. Mortgage interest is tax deductible while bond interest is not. If you plan to take out a mortgage, I suggest you add amount of bond to the mortgage and pay off the bond.

[Cheese]

Since the average Villager moves two or more times remember that you get no credit for the paid off bond. So unless
you purchase a home with a paid bond, you'll owe another bond on the second and third home. Just something consider.

[merrymini]

I assume the bond interest is amortized like a home mortgage and, like a mortgage, over 20 or 30 years. Since the best of accounts, even on line, appear to pay only about .6 Percent these days, those bond payments, I think mine was close to 6 percent, can really bust the bank, your bank that is. People underestimate how much it costs them over the life of the loan because the yearly payments do not seem that big. Use an amortization calculator and you will see how much in interest you wind up paying. Ouch! We paid off our bond on purchase because we planned staying in the house long term.

[ts12755]

Buy a used home with no bond.

[Goldwingnut]

There are two parts commonly called "bond" which come with your tax bill. There is bond maintenance, which pays for upkeep of the common areas in your CDD -- mowing, replanting of flowers, etc. This is non-deductible. Then there is the capital bond, which paid for the infrastructure early in the construction and development. Interest on the capital bond IS tax deductible (just as it would be if the developer had rolled the infrastructure cost into the price of your house) assuming you itemize. You can go to Village Community Development Districts (http://www.districtgov.org) and look up the amount of your bond and the interest rate you are paying.

The Maintenance Assessment IS NOT a Bond or a part of the development Bond that is listed on your tax bill. It is a separate assessment based on the operating and maintenance cost of the CDD you live in.

The Bond will go away when you pay it off, either as scheduled or early as you my choose, and not return. Most Bonds in The Villages have been reissued by their respective CDDs to take advantage of lower rates and saving the residents money. Once the bond is retired, as is the case in some of the norther CDDs, then they are gone for good. The CDD could issue a new bond if there is a dire need for a large some of capital to finance a project/improvement/repair/etc. but this has not happened in the residential CDDs. The commercial CDDs (SLCDD & VCCDD) have issued special purpose bonds, in 2016 the SLCDD issued $352M in bonds to purchase the amenities between 466 and 44. The residents are not responsible for these bonds.

The Bonds are not held by the developer or Citizens First Bank, they are sold on the open market to investors. They are highly rated because of the stability of the development and sell very quickly when offered.

The Maintenance Assessment will not go away and though they've been stable for the last 5 years (except CDD4) you can expect these to go up in the very near future in just about every CDD. The District Staff has done a lot of things over the last few years to lower cost and consolidate services that have helped reduce the impact of inflation and rising costs, however the cost increases have outpaced the reductions and savings achieved and either capital reserves will have to be used (very bad idea) or assessments will have to go up to balance the budgets.

The Maintenance Assessment is a tax we all pay to a governmental body for services rendered. The way it is calculated disqualifies it under IRS rules for claiming it as a tax on you 1040 so it is technically not a "tax". If it looks like a duck and it quacks like a duck...

The videos in this YouTube playlist
The Villages Information/Fees Videos - YouTube (https://www.youtube.com/playlist?list=PLhsy5KtCo4HAND0Dbf0JXOwQl_Py42dSX)
explain the Bond, Maintenance Assessments, and Amenity Fees here in The Villages.

[Dilligas]

I was reviewing new home bonds at 30K plus range and at interest rates between 3 and 5 percent. It feels like with your new home purchase you accept this bad debt. Can you explain another way of looking at it? Thanks
Read the several Goldwingnut replies. They are factual and non biased, and provide your answer completely.

[eyc234]

I assume the bond interest is amortized like a home mortgage and, like a mortgage, over 20 or 30 years. Since the best of accounts, even on line, appear to pay only about .6 Percent these days, those bond payments, I think mine was close to 6 percent, can really bust the bank, your bank that is. People underestimate how much it costs them over the life of the loan because the yearly payments do not seem that big. Use an amortization calculator and you will see how much in interest you wind up paying. Ouch! We paid off our bond on purchase because we planned staying in the house long term.

:bigbow: So true. If you do the math for the 30 years the bond can be paid out, the cost is nearly double the original price of the bond. The thought that you get to deduct it on your taxes has to be offset with your ability to itemize and your tax bracket. It does not make sense to pay a $1 in interest to get 25 cents back from the government. Interest is not something you want to pay. Very rarely do you come out ahead over life of a loan by paying interest. If we were ever to sell, which we will not, we would just add the bond price that would be outstanding at that point into the price of the house.

[Topspinmo]

The problem with paying off the bond early is that if you decide to sell your home the prevailing wisdom you will not get more for your house since you have no bond.


But, if don’t pay it off you pay quadruple or more over the length of the bond. The bond holder does not want you to pay it off early just like any loan. The loan in the interest compounded. Resale house in more attractive with no bond. Who wants to pay off extra debt when you don’t have to.

[KRM0614]

I was reviewing new home bonds at 30K plus range and at interest rates between 3 and 5 percent. It feels like with your new home purchase you accept this bad debt. Can you explain another way of looking at it? Thanks
Bond is a debt on your home/land plus land that never goes away. TV issues tax free bonds to finance future construction - homes commercial etc - we pay for it for 30 years or if you want to pay it off .
Components are bond mainyence which is roads sewer etc the house portion and fire assessment.

After it’s paid off you continue to pay interest on those bonds in perpetuity as a non ad Valorem item called HOA/maintenance

So its never really paid off as fees continue.
This was discussed with TV taxing people fL Dept of revenue
Wildwood.

[Goldwingnut]

Bond is a debt on your home/land plus land that never goes away. TV issues tax free bonds to finance future construction - homes commercial etc - we pay for it for 30 years or if you want to pay it off .
Components are bond mainyence which is roads sewer etc the house portion and fire assessment.

After it’s paid off you continue to pay interest on those bonds in perpetuity as a non ad Valorem item called HOA/maintenance

So its never really paid off as fees continue.
This was discussed with TV taxing people fL Dept of revenue
Wildwood.

This is perhaps one of the most convoluted and incorrect statements I have ever read on the Bond and Maintenance Assessments (two separate fees and different fees). You have no clue what you are talking about.

The Bond is a fixed duration issuance, once paid either on schedule or in advance it goes away. You pay no more. There is no continuing payment of the Bond interest.

The bonds are not issued by the developer, they are issued by the CDD for infrastructure construction, not homes or commercial properties. It is not for future construction; they are for construction within the CDD who issued it.

There is no Bond Maintenance, there is as Bond and a Maintenance Assessment.

The Maintenance Assessment pays for maintaining the public areas and storm water retention system, the only roads it covers is in the villa communities because of the road design. The remaining roads and sewer systems are maintained by the county, not the CDDs.

Fire Assessment is a separate fee of $124 on your property tax bill.

No part on any Maintenance Assessment goes to towards any home or residence maintenance.

There is no "TV taxing people" as there are no taxes assessed by The Villages District government. If you had spoken to anyone at the District offices, they would tell you the same thing I am now.

There is no HOA here in The Villages. The VHA and the POA are voluntary community organizations that have zero power or authority, or say in how The Villages government is run and maintained, regardless of what they say.

You should learn a little about a subject before you speak misinformation. Start by attending the Resident Academy VCDD Resident Academy (https://districtgov.org/ResidentAcademy.aspx) to get a basic knowledge. It's a much more reliable and accurate source that the pool or samba table.

[retiredguy123]

Bond is a debt on your home/land plus land that never goes away. TV issues tax free bonds to finance future construction - homes commercial etc - we pay for it for 30 years or if you want to pay it off .
Components are bond mainyence which is roads sewer etc the house portion and fire assessment.

After it’s paid off you continue to pay interest on those bonds in perpetuity as a non ad Valorem item called HOA/maintenance

So its never really paid off as fees continue.
This was discussed with TV taxing people fL Dept of revenue
Wildwood.
The maintenance fee on your tax bill is not interest on the bond. The bond is a loan used to construct the initial infrastructure needed to build the houses. When you pay off the bond, no additional interest will accrue. The maintenance fee is the cost for maintaining the infrastructure after it has been built. The maintenance fee and the bond are two different things.

[NavyVet]

I hate debt and I really hate paying any kind of interest/finance charges. I have no mortgage and pay off the credit card every month in full. It's peace of mind for me. First new home in TV in 2003, paid off the bond, thought that would be our last move. "Bond Paid" was supposedly a good selling point. We eventually upgraded to a designer home (new) with a much larger bond. Paid that off too. We are now in our third home (who would have thought? Long story) This was a resale with a huge bond balance. In neither case did Bond Paid help with the selling price of the 2 previous homes. So we have paid 2 entire bonds and are now stuck with a THIRD bond. Not falling for it again. I feel I have paid more than my share to the infrastructure.
What really sticks in my craw is it is all added to the Non Ad Valorem side of the annual tax bill. I have the 100% disabled veteran exemption on the Ad Valorem side and pay $0. Yet my tax bill here is way higher than my entire tax bill (both Ad valorem and Non) was in South Florida. That just sucks. I like my house (inflated prices and all) but living in TV is expensive for what you get. IF the time comes where I'm alone, I will be downsizing to somewhere else. I am no longer enamored with TV like I was the first 10 years here, just realistic.

[Topspinmo]

Bond is a debt on your home/land plus land that never goes away. TV issues tax free bonds to finance future construction - homes commercial etc - we pay for it for 30 years or if you want to pay it off .
Components are bond mainyence which is roads sewer etc the house portion and fire assessment.

After it’s paid off you continue to pay interest on those bonds in perpetuity as a non ad Valorem item called HOA/maintenance

So its never really paid off as fees continue.
This was discussed with TV taxing people fL Dept of revenue
Wildwood.

That is above the initial bond. If you have bond you paid the bond and the maintenance fees.

[DAVES]

I was reviewing new home bonds at 30K plus range and at interest rates between 3 and 5 percent. It feels like with your new home purchase you accept this bad debt. Can you explain another way of looking at it? Thanks

An endless debate. You should ask your accountant. For example is the interest deductible to you. Do you have the money to pay it off? What are you getting on the money you would use to pay off the bond. Re: 3-5%. The interest rate is not negotiable. Ours was 5%, we take a standard deduction so it is not deductible interest. We/I decided to pay it off, this year. We were told somewhere in the deal we signed the interest would be renegotiated in two years.

[retiredguy123]

An endless debate. You should ask your accountant. For example is the interest deductible to you. Do you have the money to pay it off? What are you getting on the money you would use to pay off the bond. Re: 3-5%. The interest rate is not negotiable. Ours was 5%, we take a standard deduction so it is not deductible interest. We/I decided to pay it off, this year. We were told somewhere in the deal we signed the interest would be renegotiated in two years.
The only way the bond interest is deductible is if it is rental property. If it is your primary residence, the bond interest is not tax deductible because the amount of the bond is not based in the value of the property. The bond interest is also referred to as a "non-ad valorem" expense. Ad valorem expenses are tax deductible, but non-ad valorem expenses are not. Your tax bill identifies these expenses as such.