Post by Admin on Jan 2, 2016 12:38:54 GMT -7
The GLA Covenants 11.06 require that the GLA Board charge 18% interest, compounded monthly, on all past due assessment amounts.
In the past some GLA Board members did not understand the difference between simple interest and compounded interest. Past due assessments were charged 18% interest compounded yearly, also known as 18% simple interest instead of 18% interest compounded monthly as required by the Covenants. For the record here is the difference between 18% simple interest and 18% compounded interest:
Debtor 1 and 2 both owe $100.00.
Debtor 1 is charged 18% simple interest per year. Simple interest means that interest is only calculated(compounded) once every year.
At the end of one year he owes $118.00.
NOTE: Percentages are a part of a whole. So 50% of 1 = .50 or 1/2.
18% of 1 is .18
100 X .18 = 18
Add 18 to 100 and you get 118. The interest for the year for debtor one is $18.00.
The total balance owed is $118.00
Debtor 2 is charged 18% yearly interest but the balance is compounded monthly.
First we divide 18 by 12 to find what the monthly interest rate is. 1.5% is the answer.
Then we charge debtor 2 every month 1.5% interest on the outstanding balance.
In January the outstanding balance is $100.00
Interest at the end of January is 100 x 1.5 which comes to $1.50.
We add that $150.00 to the outstanding balance of $100.00 and get a total of $101.50
owed at the end of January. The same process is repeated at the end of every month
as shown below:
Debtor 2 owes a total of $119.57 when 18% interest is compounded monthly instead of yearly. His actual yearly interest rate (APR) is 19.57%
Recalculating payment plans is easy once you understand the concept of interest and compounding it monthly.
Credit card statements are an excellent example of debts and interest that is calculated(compounded) monthly. A past due assessment is no different than a past due credit card debt.
The GLA Board has floated the idea of reducing the 18% compounded interest required by the Covenants to something much less. This would be a huge gift, a reward even to all the people who have not paid their assessments. The longer a landowner has been past due the larger the reward would be. A fairer proposal would be to make everyone a ONE TIME OFFER to reduce the interest and penalties by a certain percentage....if they pay in full within 90 days.
The GLA is not a lending institution nor should it become one. 18% interest doubles the original debt every 4 years and should be a powerful incentive to pay assessments promptly and in full. A community fund, financed by voluntary donations, should be established to help the truly needy pay their assessments.
Currently about 20% of GLA Landowners are not paying assessments and the past due amount with interest and penalties is about $270,000.00 and growing.
In the past some GLA Board members did not understand the difference between simple interest and compounded interest. Past due assessments were charged 18% interest compounded yearly, also known as 18% simple interest instead of 18% interest compounded monthly as required by the Covenants. For the record here is the difference between 18% simple interest and 18% compounded interest:
Debtor 1 and 2 both owe $100.00.
Debtor 1 is charged 18% simple interest per year. Simple interest means that interest is only calculated(compounded) once every year.
At the end of one year he owes $118.00.
NOTE: Percentages are a part of a whole. So 50% of 1 = .50 or 1/2.
18% of 1 is .18
100 X .18 = 18
Add 18 to 100 and you get 118. The interest for the year for debtor one is $18.00.
The total balance owed is $118.00
Debtor 2 is charged 18% yearly interest but the balance is compounded monthly.
First we divide 18 by 12 to find what the monthly interest rate is. 1.5% is the answer.
Then we charge debtor 2 every month 1.5% interest on the outstanding balance.
In January the outstanding balance is $100.00
Interest at the end of January is 100 x 1.5 which comes to $1.50.
We add that $150.00 to the outstanding balance of $100.00 and get a total of $101.50
owed at the end of January. The same process is repeated at the end of every month
as shown below:
Month | Interest $ | Balance $ |
January | 1.50 | 101.50 |
February | 1.52 | 103.02 |
March | 1.55 | 104.57 |
April | 1.57 | 106.14 |
May | 1.59 | 107.73 |
June | 1.62 | 109.35 |
July | 1.64 | 110.99 |
August | 1.66 | 112.65 |
September | 1.69 | 114.34 |
October | 1.72 | 116.06 |
November | 1.74 | 117.80 |
December | 1.77 | 119.57 |
Debtor 2 owes a total of $119.57 when 18% interest is compounded monthly instead of yearly. His actual yearly interest rate (APR) is 19.57%
Recalculating payment plans is easy once you understand the concept of interest and compounding it monthly.
Credit card statements are an excellent example of debts and interest that is calculated(compounded) monthly. A past due assessment is no different than a past due credit card debt.
The GLA Board has floated the idea of reducing the 18% compounded interest required by the Covenants to something much less. This would be a huge gift, a reward even to all the people who have not paid their assessments. The longer a landowner has been past due the larger the reward would be. A fairer proposal would be to make everyone a ONE TIME OFFER to reduce the interest and penalties by a certain percentage....if they pay in full within 90 days.
The GLA is not a lending institution nor should it become one. 18% interest doubles the original debt every 4 years and should be a powerful incentive to pay assessments promptly and in full. A community fund, financed by voluntary donations, should be established to help the truly needy pay their assessments.
Currently about 20% of GLA Landowners are not paying assessments and the past due amount with interest and penalties is about $270,000.00 and growing.