Mortgage Loan Refinancing

One of the main reasons homeowners refinance their mortgages is to take advantage of lower interest rates. If rates have lowered since the time of the original mortgage loan you obtained to purchase your shares in the co-op (known as a “share loan”) you might refinance your mortgage at a better rate and therefore reduce your monthly payments.

A general rule of thumb states that if rates drop by two percentage points, then it’s worth it to refinance. However, it might be worth it to refinance with only a one-percent drop in interest rates if you find a good deal on refinancing costs. A new lender may be willing to negotiate a reduction of points or a waiver of the title search, application, credit check or other fees.

To determine whether it’s worth it for you to refinance your share loan, you should do a break-even analysis. This analysis will help you figure out how many months it will take before you break even, after taking into consideration all the up-front refinancing costs, any prepayment penalty on your current loan, and the savings in interest payments. You can do this analysis online yourself by using the “Mortgage Refinance Savings Analysis” calculator available on our accountants’ website. Or ask your financial advisor to help you.

Some lenders offer a zero point/zero fee loan, which means that you do not have to pay most of the fees generally required; however, your monthly payments may be somewhat higher (lenders generally will charge a higher interest rate for this type of loan). The zero point/zero fee loan eliminates the need to do a “break-even analysis” since there is no up-front expense that needs to be recovered.

If you do decide to refinance, you should understand that, not only will you have to fill out the paperwork required by your financial institution and meet their requirements, but also you will have to fill out paperwork and gather materials for the co-op — the co-op must protect its interests and agree to the refinancing as well. In addition, the Board may want to meet with you to review your request.

You must therefore contact our transfer agent as soon as you start thinking about refinancing, and you will be sent a refinance application package (see sample [PDF, 273KB]) that lists the guidelines and requirements. Among these are: maximum financing allowed (80 percent of the apartment’s appraised value), copy of loan commitment letter, proof of current debt service, proof of current income, financial statement, and credit release authorization. All obligations to the co-op must be current. Refinancing application fees in the amount of $250 payable to the management company and $150 payable to Nagle Apartments Corp. must be included with your application. (See also Home Equity Loan or Line of Credit.)

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