[Lnc-business] Added Mortgage Payment

[Daniel Wiener]

Hello LNC members,

Concerning the current discussion on paying down the mortgage, I've
attached below a couple of emails from 2014 and 2015 which may be helpful,
along with an amortization spreadsheet that you can play with to see the
effect of early payments.  The 8/9/2014 email was a response to questions
about the 10-year balloon payment.  The 3/29/2015 email was in regards to
the timing of early payments, and why it was better to make such payments
as soon as possible to save on interest.  (That is indeed what Robert Kraus
subsequently did.)

When I and several other of the LNC members originally voted to authorize
the purchase of an office, we did so on the condition that every effort
would be made to pay off the mortgage before the balloon payment came due.
Of course nobody could guarantee what our future finances would look like
and what actions future LNCs might take, but we adopted the Policy Manual
provision in an attempt to nail things down as tightly as possible.

At the very least, the LNC should make good the remaining portion of last
year's budgeted $60,000 which we lacked the funds for at the time.  If we
can afford to make an additional early payment this year due to our
improved financial condition, that would be great.  However, the amount of
such an expenditure should be weighed against other important needs.  For
example, I would hate to see our membership and fundraising numbers sharply
drop back down next year because we failed to adequately invest in
membership renewals and new acquisitions.  Paying down the mortgage should
remain a high priority, but "high priority" does not mean it automatically
takes priority over everything else.

Dan Wiener

---------- Forwarded message ----------
From: Daniel Wiener <wiener at alum.mit.edu>
Date: Sun, Mar 29, 2015 at 10:20 AM
Subject: Prepayment on office mortgage
To: Wes Benedict <wes.benedict at lp.org>, Robert Kraus <robert.kraus at lp.org>
Cc: "lnc-business at hq.lp.org" <lnc-business at hq.lp.org>

Hi Wes,

In answer to your question, I dug out the attached amortization spreadsheet
for the office mortgage.  By changing the value of the additional bi-annual
payment in cell B9, you can see what the remaining balance will be after
ten years in cell B12.  For example, if we make an extra $60,000 payment in
December of odd-numbered years (as now specified in the Policy Manual), the
balance would be paid off in less than ten years (i.e., cell B12 shows a
negative balance of $6,808.21).

If you zero out cell B9 so there are no extra payments towards the
principal, the ten-year balloon balance is $367,741.21 in cell B12.  If we
were to instead make an extra $10,000 payment in April, 2015 (i.e.,
subtract an extra $10,000 in cell F16) it would reduce the ten-year balance
to $352,282 in cell B12 (a savings of $15,459.21).  On the other hand, if
that same $10,000 extra payment is delayed three months to July, 2015
(i.e., subtract the $10,000 in cell F19) it produces a ten-year balance of
$352,467.94 (a savings of $15,273.27).  So the cost (at the end of the ten
years) of delaying a $10,000 payment by three months is $185.94.  You can
play with the spreadsheet to plug in other extra payments at other times to
see what the alternative results will be.

The basic conclusion is that paying down the mortgage as soon as the funds
come in to the building fund, rather than waiting to do so twice a year,
will save us a few hundred dollars over the long tern (especially when done
early in the ten-year period).  It's not a huge difference, but it's not
nothing.  However, don't empty out the building fund if there's a potential
for other expenses associated with the office move.

Dan Wiener

---------- Forwarded message ----------
From: Daniel Wiener <wiener at alum.mit.edu>
Date: Sat, Aug 9, 2014 at 11:08 AM
Subject: Re: [Lnc-business] Financial woes
To: lnc-business at hq.lp.org

I only have time for a quick comment right now.  We do not "have a balloon
payment hanging over our heads."  That balloon payment isn't due for
another ten years, at which time the principal will have been reduced to
$367,741 if we do nothing else but pay the monthly mortgage (which is much
less than our previous office lease).  At that time we could deal with the
balloon payment by either (1) Refinancing the remaining amount, or (2)
Having another big fundraising drive which would only need to raise the
same amount we already raised for the purchase, or (3) Sell the office,
which would have a large amount of equity, even if real estate prices
declined from the $850,000 purchase price instead of rising.  We made a
large enough down payment that we do not have to worry about our loan ever
being under water.

Even that is a worst-case scenario.  I authored the change to the Policy
Manual which requires us to budget an additional $60,000 to pay down the
principal in every odd-numbered (i.e., non-election) year, when we can
mount pay-off-the-mortgage fundraising drives without interfering with
ballot access priorities.  As I showed in the attached spreadsheet, the
result of that will be to completely eliminate the balloon payment at the
end of the ten years.

Dan Wiener
-------------- next part --------------
An HTML attachment was scrubbed...
URL: <http://hq.lp.org/pipermail/lnc-business/attachments/20161127/44f70207/attachment-0002.html>
-------------- next part --------------
A non-text attachment was scrubbed...
Name: Loan amortization schedule for LNC office 2-13-2014.xlsx
Type: application/vnd.openxmlformats-officedocument.spreadsheetml.sheet
Size: 22856 bytes
Desc: not available
URL: <http://hq.lp.org/pipermail/lnc-business/attachments/20161127/44f70207/attachment-0002.xlsx>