Pay off Bond or Not?

[jollyroger]

Hi All,
As a new TV owner, I am confused on the plus and minus about paying the
"Bond" off on a new home. I plan to stay here until they carry me out in a box, and I see no sense in paying 5 to 10 times or more the original cost by amortizing the bond! I have also heard that used homes sell faster if the bond is paid? Lastly, I have been told that the interest on the bond is tax deductable (hint- hint- wink - wink). If that is not legal, I would be the one to be audited by the IRS. Please let me know what the real scoop is :)

[Golfingnut]

It is not tax deductible and yes the interest on it is high. Pay it up front.

[mulligan]

It is NOT deductible. However, you can pay it off with a home improvement loan, or credit line and deduct that interest.

[elevatorman]

This is the site that has the ammoritzation of the bond. Notice there is also a admin fee each year of $98. Village Community Development Districts (http://www.districtgov.org/departments/Finance/amortization_sumter.aspx) Your unit and section is on your Village ID.

[graciegirl]

Most people move here thinking they are buying their last house, However MANY people move from a smaller house to a bigger house or a bigger house to a smaller house or a different view or move for any number of reasons.

SO when you sell your home you must include the price of the bond if you pay it up front and that makes your home APPEAR to cost more than another home or a new home that does not have the cost included.

You will be amazed at how many people move from one home to another here. Many people on this forum have. We have. The cost to move is much cheaper here too.

[Challenger]

Hi,
As a new TV owner, I am confused on the plus and minus about paying the
"Bond" off on a new home. I plan to stay here until they carry me out in a box, and I see no sense in paying 5 to 10 times or more the original cost by amortizing the bond! I have also heard that used homes sell faster if the bond is paid? Lastly, I have been told that the interest on the bond is tax deductable (hint- hint- wink - wink). If that is not legal, I would be the one to be audited by the IRS. Please let me know what the real scoop is

If you plan to stay and can't find a guaranteed investment with a rate higher than the bond rate, you are better paying it off:shrug:

[graciegirl]

We have chosen to NOT pay it off both times, although we owned both homes without a mortgage and the reason is that we might want to move again.

[KeepingItReal]

Hi,
As a new TV owner, I am confused on the plus and minus about paying the
"Bond" off on a new home. I plan to stay here until they carry me out in a box, and I see no sense in paying 5 to 10 times or more the original cost by amortizing the bond! I have also heard that used homes sell faster if the bond is paid? Lastly, I have been told that the interest on the bond is tax deductable (hint- hint- wink - wink). If that is not legal, I would be the one to be audited by the IRS. Please let me know what the real scoop is

Bond interest is not tax deductible, the interest rate on the bond is close to 7% in most cases and there is an additional yearly administrative fee to pay as well.

If you pay the bond for 11-12 years at nearly 7% interest in most case plus a yearly administrative fee of over $100 you will have paid enough actual money to have paid it off up front. If you choose to carry it at that time you will still have another 18-19 yearly payments to make which you would have saved by paying it off in the beginning.

Each person has to decide what works best for them and make their own decision. Bond paid is definitely a selling point but then it did have to be paid by you to be able to say that.

http://www.districtgov.org/departments/finance/bond_info.aspx

[gomoho]

I would recommend you wait a few years to be absolutely, positively sure you are staying in that house. Many more before you thought the same thing, paid off the bond, and got into a new house with a new bond. If people were looking at 2 identical homes and the bond was paid on one they would probably choose the bond paid. Chances of that scenario happening are pretty slim and houses sell here quickly bond paid or not. Don't let that be your deciding factor.

[KeepingItReal]

...

[Heartnsoul]

Hi All,
As a new TV owner, I am confused on the plus and minus about paying the
"Bond" off on a new home. I plan to stay here until they carry me out in a box, and I see no sense in paying 5 to 10 times or more the original cost by amortizing the bond! I have also heard that used homes sell faster if the bond is paid? Lastly, I have been told that the interest on the bond is tax deductable (hint- hint- wink - wink). If that is not legal, I would be the one to be audited by the IRS. Please let me know what the real scoop is :)

I would suggest you pay it off ONLY if your young (maybe 50's) and plan on staying in your home forever!! Then it pays off

[Barefoot]

Most people move here thinking they are buying their last house, However MANY people move from a smaller house to a bigger house or a bigger house to a smaller house or a different view or move for any number of reasons. SO when you sell your home you must include the price of the bond if you pay it up front and that makes your home APPEAR to cost more than another home or a new home that does not have the cost included.
You will be amazed at how many people move from one home to another here. Many people on this forum have. We have. The cost to move is much cheaper here too.

I agree with Gracie's post. Many people move. We have. Paying off a bond doesn't necessarily mean that a Purchaser will be willing to pay more for your property if you move. It's a feature, and a selling point, but people tend to compare purchase prices.

Bonds are a strange thing. The purchase price of a home is actually the price plus the bond. But many people consider bonds to be separate entities.

[LvmyPug2]

Rarely do people get back the money they paid in bond payoff if they sell their home in the first few years. We found houses with bonds paid off may sell for a few thousand dollars higher than similar homes that still have a bond, but no where near the full amount the owner has spent paying off the full bond.

[JoeC1947]

I would recommend you wait a few years to be absolutely, positively sure you are staying in that house. Many more before you thought the same thing, paid off the bond, and got into a new house with a new bond. If people were looking at 2 identical homes and the bond was paid on one they would probably choose the bond paid. Chances of that scenario happening are pretty slim and houses sell here quickly bond paid or not. Don't let that be your deciding factor.

OP,

Gomoho's post makes the most sense by far IMO. Think about it a bit. Even if you wait 2 years and pay it off you'll still have a huge saving and, be more secure with your decision.

[Jim 9922]

No if's or but's, the unpaid bond lien must be considered part of the purchase price. If a buyer falls for the "don't worry about it" line from the agent, the buyer is not much better educated or careing about finances than the "payment-coupon-book-rich" who's refrain is; " I like it, but I don't care what it costs, just tell me what the monthly payments are." That's the dream customer for every sales person!

Also, I think once the build-out occurs and the developer focuses on resales, his agents will begin to fess-up a lot more about the true meaning of the bond. The bond is nothing more than allowing the builder to advertise a lower selling price and defer and officiate all the infrastructure costs. Florida is only one of a very few states that allow this, and it suckers in alot of out of state buyers..

[Barefoot]

The bond is nothing more than allowing the builder to advertise a lower selling price and defer and officiate all the infrastructure costs. Florida is only one of a very few states that allow this, and it suckers in alot of out of state buyers..

Exactly!

[mickey100]

Jollyroger - what you say makes sense, and that is why people who have good financial common sense pay of their bond. If you are fairly certain you don't plan on buying another house in the next year or two, pay off your bond. Time flies quickly - 6 or 7 years down the road will be here before you know it, and you'll wish that $2K or $3K per year you were paying on the bond had been used to just pay it off initially.

[clod]

Agree with all of the above. Additionally, it seems that there is more awareness now of the bond cost associated with a house. You may not get it all back at a sale, but the house will sell faster. IMO, the state of the bond will become more of an issue as we approach build out, when all sales will be re-sales.
:wave:

[buggyone]

Truly you should think of the price of the home is the selling price plus the bond balance.

I bought a resale home in October of 2009. The bond balance was about $2,000. Big difference than the $20,000 bond that lots of my friends got at the same time on a new home. It makes about $1,000 difference on the property tax bill every year. I would rather have that $1,000 for dinners out or other entertainment than pay it on the tax bill - but that is just me.

The bonds on new homes are now $23,000 to over $50,000. Folks, consider a resale!

[Rebel Pirate]

It is not tax deductible and yes the interest on it is high. Pay it up front.

OK, so the interest on the CDD bond isn't deductible on your federal income tax return. How about if your home in TV is an income producing investment, not your personal residence? Then is the annual interest payment a deductible expense for that property?

There may be a few tax attorneys or tax preparers on TOTV - if you reply and are one of those, please identify your professional experience. But everyone's opinion is welcome, especially if it's based on your personal experience in the same circumstances.

I really don't want to trip over the IRS rules. Thanks in advance!! :smiley:

[CaptainMorgan]

OK, so the interest on the CDD bond isn't deductible on your federal income tax return. How about if your home in TV is an income producing investment, not your personal residence? Then is the annual interest payment a deductible expense for that property?

There may be a few tax attorneys or tax preparers on TOTV - if you reply and are one of those, please identify your professional experience. But everyone's opinion is welcome, especially if it's based on your personal experience in the same circumstances.

I really don't want to trip over the IRS rules. Thanks in advance!! :smiley:

I am NOT a tax expert and I paid off my bond when I bought so I don't have any experience on paying off a bond included with monthly amenities (VCD). Here's my thoughts FWIW:

1. If you get a 1099INT statement on the bond each year, you can probably deduct the interst paid. If you don't get the 1099, then imputing the interest would proably not work (if audited). The IRS usually matches up your interest deductions with 1099s from financial institutions.

2. A sure way to legally deduct the interest on the bond is to get a home equity loan and pay off the bond. The interest on the home equity loan would for sure be deductible (and a lot less than 7%).

3. If I was buying new and had to have a mortgage, I'd put the house and bond on the same loan.

Personally, I like to keep my finances as simple as possible and not have any debt of any kind in case my investments tank again. Your mileage may vary.

Ed

[Joanned]

In this market environment 7% is hard to get on most investments
were moving into our new home in two weeks and paying off the bond I agree that you'd be better off borrowing money at 3.5% to do it if you don't have it
Jim d

[tag460]

We are going to pay off our bond when we get our first billing statement. Interest rate on our $20,000 bond is to high then add in the fees. With bank interest rates low, if we took out another type of loan to pay it off, we never have enough deductions to itemize on our taxes. We haven't had enough deductions on our taxes to itemize for years.

[graciegirl]

Jollyroger - what you say makes sense, and that is why people who have good financial common sense pay of their bond. If you are fairly certain you don't plan on buying another house in the next year or two, pay off your bond. Time flies quickly - 6 or 7 years down the road will be here before you know it, and you'll wish that $2K or $3K per year you were paying on the bond had been used to just pay it off initially.

When you try to sell your home here without the bond paid, you can advertise it for less.

We ran into someone we have known for awhile here just this week and they had just purchased their fourth home here, none of them for investment.

New people will be so surprised when they live here for awhile at just how much people will move from one home to another here and certainly without taking a financial loss.

In our new village of 53 homes we have at least a third who moved from another home in TV.

Homes are sold more easily, frequently without a realtor and moving services are far less expensive than in northern areas. People find they want a bigger home, or they may wish to downsize, or want a golf course view or wish to move from kissing lanais. Many new people will shake their heads and say ...we will NEVER move again, BUT, you may change your mind later................

I would say that the age of the resident has NOT much to do with it. Many want to change, and the change is not too difficult and so they move.

We were given that advice on this forum when we first bought here almost six years ago. So we didn't pay off the bond.

It is something to consider. Our home is paid off but not our bond. We sold and moved once, we may want to do it again, We are middle aged for The Villages. Early 70's and young at heart.

[Indy-Guy]

What will happen if you pay your bond off and a few months or years later you decide to sell your home with the bond paid.

1. Yes you will perhaps sell your house quicker if it does not have a bond if you take a loss on the bond.

2. Will you recoup the money that you spent on your bond? The answer is no. When someone tells you they are looking to purchase a home with no bond what they are really saying is they are wanting to do that because they feel that they can pay only 50 to 75 percent of the bond. Otherwise they would not be looking for a home with no bond since you can pay your bond off at anytime.

If you were a buyer would you pay the seller back what he paid the bond off for or would you try to steal the deal.

I do not feel that you will even be close to getting you bond money back at the time of sale. The money you would loose in the bond will be a lot more than the amount you would spend in interest and fees during the first 2 or 3 years. Pay your bond off only if you have decided that this is the home you will own for the next 10 or 20 years. I don't think that you will know that till you have lived in it for several years.

I waited 4 years before I paid my bond off and when I did my wife and I decided that this is our home for many many years to come. I do not regret waiting.

[gomoho]

Fact is if you even get a portion of the bond back when you sell you will still come out ahead since you have not given away thousands in interest over the previous years. Should you sell after 12 years you will have paid out enough to have paid off the entire bond in full and will be trying to sell a home with 18 more yearly bond payments due which is still one and on half as many dollars as the entire original bond was to begin with. If you plan to sell in a year then maybe you would not want to pay it but each year you pay the interest and fee is actually an addition to the overall bond amount if you do pay it at some point.

A 12 year old house with the bond paid VS a 12 year old house with 18 more bond payments to go is no contest at all everything else being equal..and the owners of each of the homes has paid out exactly the same amount towards the bond. This will be even a larger incentive in the newer areas where the bond is very high compared to some areas.

The only flaw I see in your argument is "all things being equal" how often is that the case when looking at property???

Also the poster before you recommended waiting a few years to be sure this is the home you are going to stay in - that to me is a no brainer - why give away 20 thousand to save a few over a couple of years?

[mickey100]

What will happen if you pay your bond off and a few months or years later you decide to sell your home with the bond paid.

1. Yes you will perhaps sell your house quicker if it does not have a bond if you take a loss on the bond.

2. Will you recoup the money that you spent on your bond? ... When someone tells you they are looking to purchase a home with no bond what they are really saying is they are wanting to do that because they feel that they can pay only 50 to 75 percent of the bond. Otherwise they would not be looking for a home with no bond since you can pay your bond off at anytime.....


Using the numbers that KeepingItREal provided, and looking at a scenario of 3 years. You don't pay off the bond, you spend with fees about $2K per year which is $6K on bond interest. The balance on the bond is still $21K. You sell the house "losing" $6K you spent on the interest on the bond. Now if the bond had been paid off and the buyer pays 75% of the bond, that would be $16K, so you'd be out the same amount of money. Plus having bond paid is a definite inducement to some buyers and makes your home stand out among similar homes. And of course, you have the added bonus of making money in the long run if you don't sell your house right away.

I think too, that people aren't selling houses so often as they might have in the past. Back in the 2005-2007 during the real estate boom, there were people buying, flipping, etc., which isn't happening now. I'd guess that most people buy now and stay in their homes. You will always have some turnover, but not to the extent it was during the booming real estate days. As I said previously, if you think you're going to keep your house more than a few years, IIMHO you'd be wise to pay off the bond.

[graciegirl]

Many of us being in the fall or early winter of our lives are not thinking about investment, taxes or how things will be in ten or twelve years.

We are making our decisions about where we want to live and in what and if we want to move for the fun of having a house that is even nicer for us here...... for the now of our lives....and we should.

How many of us are going to be here to see a thirty year mortgage paid off?

With that pleasant thought, I wish you good mornng.

[mickey100]

Gracie, I'm sorry to hear your negative outlook on your life expectancy. You are always so positive about buying a house and living in in The Villages, I expected that positive outlook to spill over into other areas.

Its important to note, many people age 60 and over are healthy and fit, and life expectancies have risen in the last decade, due to medical advances and better healthy lifestyles.

According to data compiled by the Social Security Administration:

A man reaching age 65 today can expect to live, on average, until age 83.
A woman turning age 65 today can expect to live, on average, until age 85.
And those are just averages. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.

Unless there are health or other issues, many retirement planners advise having a financial plan that covers you up until age 90. With that in mind, I don't think it is financially smart to blow thousands on bond interest if one can easily avoid it.

[graciegirl]

Gracie, I'm sorry to hear your negative outlook on your life expectancy. You are always so positive about buying a house and living in in The Villages, I expected that positive outlook to spill over into other areas.

Its important to note, many people age 60 and over are healthy and fit, and life expectancies have risen in the last decade, due to medical advances and better healthy lifestyles.

According to data compiled by the Social Security Administration:

A man reaching age 65 today can expect to live, on average, until age 83.
A woman turning age 65 today can expect to live, on average, until age 85.
And those are just averages. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.

Unless there are health or other issues, many retirement planners advise having a financial plan that covers you up until age 90. With that in mind, I don't think it is financially smart to blow thousands on bond interest if one can easily avoid it.

You are right as usual Mickey.:BigApplause:

I intend to live to be 124, but just in case..........

[Skybo]

Whether or not to pay off the bond is a very individual decision based on numerous factors. There is no across-the-board right or wrong answer. I will say this though...I think the �recoupment� estimates I�ve read on this thread are very high, particularly if you sell your home to someone who is taking a mortgage. At least for the time being, the prices (and appraisals) of resales are driven by the new home prices. A home with a paid off bond will only be more attractive and saleable if the price is the same or close to the same as a comparable new home. And a home with a paid off bond is not going to appraise for several thousand more than a comparable home, so even if someone really wants your home, they may not be able to get the financing or have the extra cash to buy your home if you try to add on a large percentage of the bond.

[villagerjack]

Most calculations ignore "opportunity cost", the amount you would receive investing these same funds and the fact that part of your monthly payment includes principal amortization. I left my funds in a Vanguard High Yield Fund instead of paying off my bond and I am confident I am ahead of the game.

[Russ_Boston]

Most calculations ignore "opportunity cost", the amount you would receive investing these same funds and the fact that part of your monthly payment includes principal amortization. I left my funds in a Vanguard High Yield Fund instead of paying off my bond and I am confident I am ahead of the game.


Thanks for pointing that out. Somehow the previous poster, regardless of how long their post was, seemed to ignore this significant variable. But I can see both sides of the coin since the bond interest is not deductible.

[villagerjack]

Thanks for pointing that out. Somehow the previous poster, regardless of how long their post was, seemed to ignore this significant variable. But I can see both sides of the coin since the bond interest is not deductible.

I would have to look at it more closely but as I remember it when I bought VWEHX the interest I received covered both princioal and interest on the bond. Since then the price of VWEHX has risen substantially and I have a nice profit while over the years the bond has amortized. I could pay off the bond and stll have a nice profit. Point is that it is just not as simple a calculation. Raw numbers just don't tell the story.

[mickey100]

High yield bond funds are very risky. The whole bond market has done well the last few years, but there is no guarantee that will continue. Someone did point out in a previous post that if you could find an investment that paid more than the interest on the (home) bond that you'd be better off going that route, but in this interest rate environment, to find a safe investment that will do so, could be challenging.

[Bavarian]

The interest you earn normally is taxable, the bond interest you pay is not deductible. Bond money I used was sitting in account at less than 1% so it was no big decision. All these points are why what is right for one may not be right for another.

With Quantitative Easiny driving up inflation and causing a good chunk of the DOW increase, we must be preparing for inflation. Interest rates may go up, prices go up and what you have in the way of immovable assets should go up. The Bond may look cheap soon.

[KeepingItReal]

...

[stjames]

the bond has a 6.125% interest, plus $108/year administrative cost fee. It is set up like a mortagage, that is, you pay high interest each year with a small part going to principal. If you wait to pay off a $23,000 bond, you will have paid over $55,000 for it.

[patfla06]

I don't like the idea of paying double over the life of the bond
Plus admin costs.
My husband likes the idea of paying it off so later on (if I'm alone) my costs will be less.
It's an individual decision and not an easy one.

[mickey100]

We felt the same way. Your costs will be less later on, you save a lot of money in the long run, and it makes your house easier to sell.

[asianthree]

When we buy the last house we will pay off the bond

[graciegirl]

When we buy the last house we will pay off the bond

Yep. You are right again.

Graeters breath. ;)

http://www.graeters.com/

[Cantwaittoarrive]

It is not tax deductible and yes the interest on it is high. Pay it up front.

I agree. The only caveat I might make is wait a year or two to make sure you are not going to downsize/ upsize then pay it off

[mrsyarbie]

Is it true if you pay off your bond there is still a fee you have to pay $500.00 every year for "maintenance of the infrastucture" ?????

[Russ_Boston]

Yes. But it is not part of the bond itself. Totally separate deal.

[KeepingItReal]

...

[Quixote]

No if's or but's, the unpaid bond lien must be considered part of the purchase price. If a buyer falls for the "don't worry about it" line from the agent, the buyer is not much better educated or careing about finances than the "payment-coupon-book-rich" who's refrain is; " I like it, but I don't care what it costs, just tell me what the monthly payments are." That's the dream customer for every sales person!

Also, I think once the build-out occurs and the developer focuses on resales, his agents will begin to fess-up a lot more about the true meaning of the bond. The bond is nothing more than allowing the builder to advertise a lower selling price and defer and officiate all the infrastructure costs. Florida is only one of a very few states that allow this, and it suckers in alot of out of state buyers..

How true it is! And too many buyers overlook the bond and focus only on the price of the home. See below.


Truly you should think of the price of the home is the selling price plus the bond balance.

I bought a resale home in October of 2009. The bond balance was about $2,000. Big difference than the $20,000 bond that lots of my friends got at the same time on a new home. It makes about $1,000 difference on the property tax bill every year. I would rather have that $1,000 for dinners out or other entertainment than pay it on the tax bill - but that is just me.

The bonds on new homes are now $23,000 to over $50,000. Folks, consider a resale!

The first sentence tells it like it is: The TRUE price of a home is price PLUS bond, no matter what one does with the bond. Yes, bonds on the newer homes are extraordinary contrasted with those on villages built earlier. (I don't want to say "older," as a five- or ten-year-old home is not exactly falling apart....)

And what that first sentence and the previous quote don't say completely, the last sentence finishes it off. I bought my first home in TV with the bond paid by the previous owner; the home was 2.5 years old. By two years later I figured out, just from living here, exactly what I wanted. I sold and bought a home a mile away (built the same year) that still had its bond ... of $5,000 ... which I paid off in a breath.

Had the previous owners done themselves a good service or a disservice by paying 7% interest plus an annual management fee from 2004 to 2011? Better heads than mine who've posted in this thread could probably answer that accurately. All I know is that I benefited from "bond paid" on the first house and a very low bond on the last. And you're my witnesses: It IS the last house which I will leave feet first in a box....

Last year there was a thread that became pretty controversial about buying new versus resale, in which the bond was only one consideration. For those who are undecided, it might be worth a re-read.

[gustavo]

I don't like the idea of paying double over the life of the bond
Plus admin costs.
My husband likes the idea of paying it off so later on (if I'm alone) my costs will be less.
It's an individual decision and not an easy one.

It actually is pretty easy, you either decide to pay it or not, easy enough:icon_bored:.

[l2ridehd]

I think the answer is simple. If you truly believe your in your forever home then take an equity loan or money from someplace else and pay the bond. Tough to beat 7% guaranteed ROI. If you even have an inkling that you might move again then wait. Resale homes with the bond paid recover 34.7% of the bond value in the sale price. This is based on statistics I have tracked for over 6 years. (ranch and designer homes only) Although I guess if I had all resales it would be very close to the same.

If I look at everything, Time value of money, what I could invest the same amount for elsewhere, what I could recover if I sell, cost of bond interest, speed to sell with a bond paid, it looks like 7 to 9 years is the break even point. Also would vary slightly based on age of home and how much of a bond was left to pay.

The question on the bond expense being deductible if the home is a rental property is yes. ALL expenses including bond, trash, water, amenity fee, paint, repairs, home improvements, furniture, lawn mowing, etc, etc are a cost of doing business and a valid tax deductible expense. Again only if this home is rented or available to rent all the time and you use it 2 weeks or less each year for personal use.

I own 3 homes. One for our use and two rentals. Ours I paid the bond off as I knew it would be 6 years before we would be able to make the decision to stay or move. So I only needed one more year to break even. And if we stay there more then 7 I make money. One rental I bought with the bond already paid. The other is not paid and I will never pay it as long as it is a rental.

Each decision is unique and all variables should be considered. Be happy to help anyone step through the decision process if they are on the fence.

[patfla06]

We had planned to pay if off right away.
And then I kept thinking about GracieGirl talking about
how many people moved within T.V.

So now we're planning on keeping it for a year or two
to make sure we're staying and then if we are pay it off.