Over the past few years, if you owned a co-op in New York City, pretty much the only way you could tap into the equity of your apartment and extract some cash was by refinancing your entire mortgage.
“When interest rates were dropping, it was a smart move. You could often refinance into a lower-interest-rate loan and take cash out without changing your monthly mortgage payments,” says Brittney Baldwin, National Cooperative Bank’s loan officer. “But with rates inching back up, taking cash out when you refinance means your monthly payments will be higher—on top of the $2,000 to $3,000 it costs to refinance.”
With refinancing less attractive and home values rising, the home equity line of credit (HELOC) and home equity loan (HELOAN) options have become available. Unlike a traditional mortgage refinance, a HELOC essentially allows you to treat your apartment like a credit card and costs only a few hundred dollars to set up (the exact price ranges depending on the value of the home). The HELOAN will allow you to leave your current first mortgage in place and take out a fixed-rate second mortgage in a lump sum.
“We’ve seen co-op owners take out HELOCs to pay tuition bills and assessments, as well as to renovate or to consolidate credit card debt,” says Baldwin. “You borrow what you need, when you need it, and pay it back over time,” she says.
Interest rates for HELOCs are set at a certain percentage above the prime rate. Unlike a fixed-rate mortgage, your rate can fluctuate over time, but it shouldn't be more than 1 or 2 percent above the prime rate, depending on the terms of your lender.
National Cooperative Bank, which specializes in financing co-op apartments, currently offers HELOCs at a primary residence at an interest rate of prime to prime plus 1 percent, depending on a buyer's credit qualifications. With prime at 5.5 percent right now, that translates to rates at 5.5 to 6.5 percent. And during the first 10 years, you only have to pay interest on what you borrow.
“After 10 years, you pay off the balance over a term of 20 years,” says Baldwin.
“We have seen many co-op owners taking advantage of home equity loans as well. Many borrowers have a great fixed rate mortgage and are not looking to refinance this rate. These borrowers still want to do home improvements and have a fixed cost and estimate. The home equity loan is a great way to lock in your monthly payments,” says Baldwin.
NCB offers a home equity loan with 5-, 10- or 15-year fixed-rate options for buyers (rates depend on credit qualifications). A home equity loan is different than a HELOC because you borrow all the money at closing and you're required to pay principal and interest payments on a monthly basis.
Most lenders, including National Cooperative Bank, will allow you to borrow 70-80 percent of your apartment’s appraised value. “So if your place is worth $1 million and you have an existing $500,000 mortgage, you’ll be able to finance an additional $200,000-300,000, bringing your total debt to $700,000-$800,000,” she explains.
While some co-ops don’t allow home equity products, most give the green light and don’t even ask what the money is for, says Baldwin, noting that on occasion co-ops “will limit the amount you can borrow to 50 percent of your apartment’s appraised value.”
Brittney Baldwin is vice president and loan officer for National Cooperative Bank. Contact her at 646-201-4714 or [email protected]
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