Q: We live in a large co-op that is considering refinancing our loan. We would have to pay a rather large prepayment penalty, but with the lower interest rate, would save a considerable amount per year to pay for upcoming and overdue capital projects. Is it worth it?
A: For a co-op thinking of refinancing, now's the time to pull the trigger, say our experts. "If you can save money year over year by taking advantage of the low interest rate environment—and this savings outweighs the co-op's prepayment penalty—the answer is yes, definitely refinance," says Mindy Goldstein, the Senior Vice President mortgage lender National Cooperative Bank. "Especially if you can take out money for capital improvements," she adds.
"Given today's historically low rates, especially for co-op loans, many co-ops are reviewing the economics of a refinance," notes real estate attorney Dean Roberts of Norris, McLaughlin & Marcus, who calls the decision "a fairly straightforward mathematical equation." While your pre-payment penalty is likely to be steep, if the savings from your lower rates over time (generally around 10 years) will outweigh the cost of the penalty, Roberts says, than refinancing is probably a good idea. "Most times it does make financial sense if the difference between the current interest rate and the new loan interest rate is substantial."
In particular, if the building has capital needs or other issues that require extra funding (and it sounds like yours does), you should absolutely use these low rates to your advantage. "If you were going to look for funding anyway, this is a very good time to be doing it," says Roberts. Provided your co-op can get a rate that's significantly better than the one you have now, get that new financing while the getting's good.
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