Loan Assessment VS Reserve contribution

A loan assessment is a situation where a homeowner association takes a bank loan to cover the costs of a major renovation, such as plumbing repairs, in the building. The owners are typically given two options to contribute towards the repayment of the loan. They can either pay a lump sum upfront or make monthly payments over a specific period of time. These monthly payments made by the owners to repay the loan are referred to as loan assessments.

On the other hand, reserve contribution is a practice employed by homeowner associations when they need to accumulate sufficient funds in their bank account to cover various expenses and potential future renovations. If the association does not have enough money in reserve, they charge the owners additional fees along with the regular maintenance fees. These extra fees are collected from every owner on a monthly basis and become part of the monthly maintenance fee. Unlike loans, reserve contributions do not have a remaining balance that can be paid off at closing; instead, they are ongoing monthly fees that owners must pay to build up the association's reserves.

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