Post by Admin on Jan 2, 2016 13:20:50 GMT -7
In 2011 I wrote an article at www.timslife.com/gla/home04.php that discussed payment plans that the GLA Board set up with two specific landowners. I stated:
“Debtor number one owes $8,000.00 and makes monthly payments of $100.00 and is charged NO interest. She will have her bill paid in full in 80 months, 6 years and 8 months or October of 2018. The land owners will have collected $8,000.00.
If the covenants were followed and 18% interest was charged for the life of the loan then with land owner number one making $100.00 monthly payments the total amount collected by the land owners would be $36,000.00 and it would take debtor number one 360 months to pay in full. By waiving interest the land owners lose $28,000.00.
Debtor number two pays $35.00 a month on a loan of $2,289.00. It will take them 65 months, until August 2016, to pay off the loan. The land owners will receive $2,289.00.
If the covenants were followed debtor number two would pay 18% interest on the life of the loan. They would make $35.00 monthly payments for 267 months and pay $9,345.00 in total. Because the loan is interest free the land owner’s end up losing $7,056.00 on debtor number two's loan while providing full services to them.”
Several people have questioned how I arrived at my figures and did the GLA Board really give away $35,056.00.
I do not have my original notes so I recalculated the payment plan arrangements stated above.
For the record:
18% simple interest on $8,000.00 per year is $1,440.00. Since debtor one was only paying $100.00 a month the total amount she would pay over one year is $1,200.00. Since that is not enough to cover the simple interest of $1,440.00 debtor one could pay $100.00 a month for the rest of her life and still not pay off the past due amount. Of course it is highly unethical to create a loan that can never be paid off. That is why credit cards require a minimum monthly payment.
If we increased debtor number one’s payment to $120.57 per month then they could pay off the loan with 18% simple interest in 360 months or 30 years. The total loan amount paid would be $43,405.20; $8,000.00 in principle and $35,405.20 in interest. Since the GLA Board waived all interest the landowner's lost out on ever using $35,405.20 for improved roads, etc.
To see a Monthly Payment Schedule that provides month by month details of interest and principle paid plus the the balance due click on the link.
The GLA Board did a little better with debtor # 2.
The total loan amount paid would be $9,312.00; $2,289.00 in principle and $7,023.00 in interest over a period of 22 years and 3 months. Since the GLA Board waived all interest the landowner's lost out on ever using $7,023.00 for improved roads, etc.
To see a Monthly Payment Schedule that provides month by month details of interest and principle paid plus the the balance due click on the link.
So recalculating the total amount of landowner money given away by the GLA Board to the above two debtors is $42,428.20
My original amount of $35,056.00. was low and off by $7,372.20. I humbly apologize for my errors and hope that this post clarifies my statements, calculations and position.
There are several very bright people that work at the Bank of the Rockies and may be willing to review my calculations above.
The actual amount given away by the GLA Board is even higher than my figures and could skyrocket because:
Please leave your thoughts and comments below.
“Debtor number one owes $8,000.00 and makes monthly payments of $100.00 and is charged NO interest. She will have her bill paid in full in 80 months, 6 years and 8 months or October of 2018. The land owners will have collected $8,000.00.
If the covenants were followed and 18% interest was charged for the life of the loan then with land owner number one making $100.00 monthly payments the total amount collected by the land owners would be $36,000.00 and it would take debtor number one 360 months to pay in full. By waiving interest the land owners lose $28,000.00.
Debtor number two pays $35.00 a month on a loan of $2,289.00. It will take them 65 months, until August 2016, to pay off the loan. The land owners will receive $2,289.00.
If the covenants were followed debtor number two would pay 18% interest on the life of the loan. They would make $35.00 monthly payments for 267 months and pay $9,345.00 in total. Because the loan is interest free the land owner’s end up losing $7,056.00 on debtor number two's loan while providing full services to them.”
Several people have questioned how I arrived at my figures and did the GLA Board really give away $35,056.00.
I do not have my original notes so I recalculated the payment plan arrangements stated above.
For the record:
- The GLA Board recently confirmed in a letter to a landowner "when a landowner signs a payment plan contract, the ongoing 18% interest is frozen. They owe principle and all the interest accrued before the payment plan was signed, but future interest is frozen.". In effect this creates a zero percent or interest free loan for the past due amount. Freezing future interest means that it is forgiven. The GLA letter is at the end of the post.
- Past due assessments are like a credit card debt. If the credit card balance is not paid in full whatever amount left will be charged interest every month it is past due. The interest is calculated(compounded) monthly. To read more about 18% Simple interest versus 18% compounded interest click on the link.
- 18% interest calculated monthly creates an Annual Percentage Rate (APR) of 19.57%. For simplicity I will use ONLY 18% simple interest for my explanations. I will also assume that the debtor stays current with their yearly assessments and thus pays them in full every year. Only the original debt is used and just 18% simple interest is calculated.
- The monthly payment amounts were suggested by debtors and accepted without negotiation by the GLA Board. Whatever amount the debtor was "comfortable" in paying was accepted.
18% simple interest on $8,000.00 per year is $1,440.00. Since debtor one was only paying $100.00 a month the total amount she would pay over one year is $1,200.00. Since that is not enough to cover the simple interest of $1,440.00 debtor one could pay $100.00 a month for the rest of her life and still not pay off the past due amount. Of course it is highly unethical to create a loan that can never be paid off. That is why credit cards require a minimum monthly payment.
If we increased debtor number one’s payment to $120.57 per month then they could pay off the loan with 18% simple interest in 360 months or 30 years. The total loan amount paid would be $43,405.20; $8,000.00 in principle and $35,405.20 in interest. Since the GLA Board waived all interest the landowner's lost out on ever using $35,405.20 for improved roads, etc.
To see a Monthly Payment Schedule that provides month by month details of interest and principle paid plus the the balance due click on the link.
The GLA Board did a little better with debtor # 2.
The total loan amount paid would be $9,312.00; $2,289.00 in principle and $7,023.00 in interest over a period of 22 years and 3 months. Since the GLA Board waived all interest the landowner's lost out on ever using $7,023.00 for improved roads, etc.
To see a Monthly Payment Schedule that provides month by month details of interest and principle paid plus the the balance due click on the link.
So recalculating the total amount of landowner money given away by the GLA Board to the above two debtors is $42,428.20
My original amount of $35,056.00. was low and off by $7,372.20. I humbly apologize for my errors and hope that this post clarifies my statements, calculations and position.
There are several very bright people that work at the Bank of the Rockies and may be willing to review my calculations above.
The actual amount given away by the GLA Board is even higher than my figures and could skyrocket because:
- I used 18% simple interest instead of 18% interest compounded monthly which yields 19.57%.
- I only used two payment plan examples that I had direct knowledge of. There are more landowners who received special deals and/or agreed to payment plans that the details of have been kept a secret by the GLA Board. The GLA Board has refused to release any of the details of current or past landowner payment plans.
- Just to highlight the amount at stake: if everyone today (January 2nd, 2016) who owes past due assessments was put on a 15 year payment plan with interest frozen the amounts would be like this. The principal would be $270,000.00. The amount received by the GLA per month would be $1,500.00 for 15 years for a total of $270,000.00
- If 18% simple interest were charged, the amount received per month for 15 years would be $4,348.18 for a total of $512,643.00 in interest plus the principal of $270,000.00 for a grand total of $782,683.00. Freezing interest results in a loss of $512,643.00 in interest over the 15 life of the loan.
- To use the example of a credit card once again. Let's say you owe $10,000.00 on your card and lost your job. If the card was issued by the GLA Board you could offer to pay any amount you wanted and they would freeze the interest. So you could agree to pay $20.00 per month, take 500 months (41 years and 8 months)to pay off the balance and never get charged a penny in interest!
- Debtors aside,does anyone believe that freezing interest, in effect offering zero percent loans for past due landowners is a good idea?
Please leave your thoughts and comments below.
