Tax Exempt Bond Vs Taxable Calculator

Tax-exempt bonds provide meaningful rate advantage for affordable housing.

Bond amount

Taxable rate %

TE bond rate %

Term years

Total interest savings

$9,450,000

Annual savings (first year)

$450,000

Rate savings (bps)

150

How the math works

Annual = bond × rate diff. Total (avg balance over life) ≈ bond × rate diff × years × 0.6.

$30M × 1.5% = $450k/yr × 35 × 0.6 = $9.45M total savings. 150 bps spread.

How to Use

Enter bond amount.
Enter taxable rate %.
Enter TE bond rate %.
Enter term years.
Read rate savings.

Frequently Asked Questions

What are tax-exempt private activity bonds?

Bonds issued by state/local housing finance agency on behalf of private affordable housing developer. Interest to bondholders is federal income tax-exempt. Results in lower interest rate (100-200 bps below comparable taxable). Must meet federal requirements: 40-60 or 20-50 rule (20%/40%/40% income-restricted). Qualifies for 4% LIHTC non-competitive allocation. Common for larger affordable housing (>$10M typical).

How much is the rate savings?

Typical: 100-175 bps below comparable taxable rate. $30M bond × 150 bps × 35 years = $15.75M cumulative interest savings. Present value much smaller but still material. Combined with 4% LIHTC creates significant subsidy. Rate spread varies with market, issuer credit, deal structure. State HFA (Housing Finance Agency) rating matters — AA vs A issuer spread: 25-75 bps.

Bond financing structure?

Public offering (larger, $20M+) vs direct placement (smaller). Variable rate vs fixed rate. Credit enhancement (FHA, bond insurance, HFA guarantee) can cut rate 50-100 bps. Debt service coverage minimum 1.15-1.20. Reserve requirements 6-12 months. Amortization 30-35 years. Interest-only period 18-24 months during construction. Complex structuring requires experienced bond counsel.

Compliance burden?

Federal: 40-60 income/rent restrictions throughout bond life. State HFA: additional restrictions (reporting, inspections). Ownership structure: must be passthrough entity (LP or LLC). Must maintain compliance for full bond term (30-35 years typical). Extended use period after bond payoff. Monitoring: typically HFA inspects annually, tenant certifications every 6 years. Compliance is expensive but manageable with scale.