Condo association loan - Questions about loan term/amortization

A condo association loan can be a useful tool for funding capital improvements or unanticipated repair costs. Key condo association loan terms include: amount, interest rate, prepayment penalties (if any), amortization, and term.

In the vast majority of cases, a condo association is fully amortized-- that is, the amortization period and the term are the same (e.g., 3 years, 5 years, 10 years, 15 years).

The longer the amortization period, the lower the payment for the association, but the more interest is charged over the life of the loan. Condo association lenders typically match the amortization (and the term) to the useful life of the underlying capital improvements. For example, a project for new asphalt may justify a 5 year amortization (assuming that is the useful life for asphalt) while a structural repair may justify a 15 year amortization (assuming that is the useful life of those improvements).

Condo association lenders are typically conservative in their assumptions. So, if a useful life is 10 years, they may structure the condo association loan with a 7 year amortization.

A good strategy for condo associations is to obtain financing with longer amortization periods but with the flexibility to pre-pay the loan without penalty.

For more details on the condo association loan approval process, click here.