A Bond Is Like A Mortgage

According to UMC’s audited financials from September 2014, pg 42, “The outstanding balance was $116.335 million and $118.255 million at September 30, 2014 and 2013, respectively.”  So, on a $120.1 million bond, UMC has managed to pay down a little less than $4 million in 6 years.

For the majority of us, when you buy a house you have to take out a loan.  That loan has an interest rate and a time frame associated with it (for example, 7% over 15 years).  When you apply for the loan, the bank calculates what your monthly payment is going to be and that is a mixture of interest, property taxes and principle (money that goes directly to paying for the house).  Any extra money you pay each month goes directly to the principle and pays down the house faster so that you pay less for the house in the long run.

It is the same with a bond.  When UMC ‘issues’ a bond, they are basically taking out a loan that has interest and a time frame.  They are committing to take the property taxes that they receive from you and using those to pay down the interest + principle on that loan.  Any extra money that they pay goes directly to the principle and pays down the bond faster so that YOU pay less for the bond in the long run.  As part of the deal with EPCH, UMC will be receiving $6 million a year in rent.  Imagine how much faster that bond would be paid down, how much less money you would pay for it if that rent money was being used to pay the principle.

Right now, we’re being told that the money is being saved for ‘depreciation’ with no indication that it will be held in a separate account or when/how that money will be applied to the EPCH building.  But, use the rent money to pay for the bond and, for tax payers, the burden of paying for the $120.1 million bond will be relieved MUCH faster, allowing our property taxes to go down that much sooner.

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