Over the past few years, if you owned a co-op in New York City, the only way you could really tap into the equity of your apartment and extract some cash was by refinancing your entire mortgage.
“As interest rates drop, it may be a smart move to refinance into a lower-interest-rate loan and take cash out without changing your monthly mortgage payments,” says Brittney Baldwin, vice president and loan officer at National Cooperative Bank. “However, taking cash out when you refinance means your monthly payments will be higher—on top of the $3,000 to $4,000 it costs to refinance. You also could be looking to extend the loan term that you have been working to pay off if you look to refinance.”
Refinancing is still a great option, however it is not your only recourse, because the home equity line of credit (HELOC) and home equity loan (HELOAN) have become available to co-op owners in New York.
Unlike a traditional mortgage refinance, a HELOC 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 assessments, as well as to renovate or consolidate credit card debt,” Baldwin says. “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 around 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 on a primary residence at an interest rate of prime to prime plus 1 percent, depending on a buyer's credit qualifications. With prime at 3.25 percent right now, that translates to rates at 3.25 to 4.25 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,” Baldwin says.
“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,” Baldwin says.
NCB offers a home equity loan with five-, 10- or 15-year fixed-rate options for buyers (rates depend on credit qualifications). A home equity loan is different from 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 to 300,000, bringing your total debt to $700,000 to $800,000,” Baldwin says.
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, Baldwin says, 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 via email or call 646-201-4714.
