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I have been considering paying HOA fees in advance and lowering my my emergency fund.

  • Is this good or bad? My idea is that if I can make mortgage and HOA fees 6 months in advance, I would say that my emergency fund doesn't have to worry about housing but food, transportation etc.

However, I wondered: what would happen if say a fire made my condo or the building uninhabitable?

  • What if we ended up in a situation where it would be cheaper for the insurance company to make a cash payment rather than rebuild, would I have lost my mortgage and HOA payments that I made in advance? I think the mortgage companies get paid first for the balance and what is left is paid to the residents. Please correct me if I am wrong.

The HOA is a building - not spread-out community.

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    Why would you want to do this? If you keep your emergency fund in a high-yield savings account or money market fund you could be earning close to 4% at the moment.
    – Craig W
    Jan 2, 2023 at 16:49
  • Are you referring to both the HOA and the mortgage? Jan 2, 2023 at 17:33
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    AFAIK, insurance companies don't rebuild. They pay the claim and the owner decides whether to rebuild or not. I think that you'd lose some of your prepaid HOA fees because settlements don't occur overnight. For convenience, I used to pay my HOA fees three months in advance because interest rates were near zero. With rates higher now, it makes sense to pay monthly. Jan 2, 2023 at 20:57
  • What about the mortgage payment itself? I assume that it is better to pay this one in advance if the mortgage rate is higher than the savings rate? Jan 2, 2023 at 22:06
  • Many banks would not allow prepaying the mortgage for more than a couple of months.
    – littleadv
    Jan 3, 2023 at 6:32

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If you pay the HOA fees in advance, then your extra funds will be viewed as a liability by the HOA. Over the next six months that liability will decrease. You will then have to start paying the fee when the balance returns to zero. I have known people who did this, they paid the entire year in one payment. I don't think it saved them any money, but it did mean they didn't have to remember to mail a check every month. It was that long ago, that there was no way to pay it except by check. I guess they saved 11 stamps and envelopes. One word of caution, pay attention to the month they decide on the new HOA rate, or you might discover that you only paid for 5 and 7/8 months, and get surprised by a late fee.

If the HOA was to collapse then you would have to see if they can refund your excess payments. You might be treated just like anybody else that they owed money to. Of course the HOA should have money stored in a reserve fund to replace the roof, so they may owe every member some money.

Don't do this if you will be selling within that 6 month period, it just makes one more thing to be addressed at closing.

Now looking at the mortgage.

If the insurance company was to pay off the mortgage, then everything above the mortgage balance would be yours to keep. You wouldn't lose the money.

Of course most mortgages will limit how far in advance you can pay. They will allow you to pay extra to reduce the balance, but that allows you you pay it off quicker, it doesn't let you skip payments. Find out if they will allow you to pay ahead more than a month or two.

I am not sure what this accomplishes. If you pull the money from your emergency funds to pay the mortgage and HOA six months ahead, you still have to rebuild the emergency fund up during those six months.

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