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Should I do a cash-out refinance or a home equity loan on my NYC co-op apartment?

It's a great time to refinance if you're looking to renovate your apartment. 

Austin Havens-Bowen for Brick Underground/Flickr

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Question:

With interest rates so low in the coronavirus era, what makes more sense right now—a cash-out refinance or a home equity loan on my co-op apartment?

Answer:

With interest rates at historic lows, it makes sense to refinance now if you're planning to make upgrades on your apartment, our experts say.

Amid the economic volatility brought on by the coronavirus pandemic, lenders keep dropping their interest rates, and economists wonder whether rates may plummet further to 0 percent. 

Rates are particularly favorable for buyers, and homeowners across the country are taking the opportunity to refinance their mortgages. And according to our experts, refinancing is a better move here than taking out a home equity loan. 

"It is a great time to look to cash-out refinance and lock in your interest rate, if you are looking to renovate your unit or consolidate debt," says Brittney Baldwin, vice president of National Cooperative Bank (a Brick sponsor). "Even if you may not want to renovate your unit now, and may not do so for a few months, it still may make the most sense to refinance now."

Baldwin explains that taking out a home equity loan or line of credit would mean making two separate payments each month. Refinancing your mortgage and taking a cash out, on the other hand, could allow you to keep making monthly payments similar to the one you're already paying. 

"You may even be able to refinance and look at a shorter-term mortgage," she says. 

Another potential hurdle with taking out a home equity loan is your co-op building's restrictions. Some boards may not allow shareholders to take out home equity loans, so this is something to check on before you proceed.

"Technically co-ops are not real property—the owner is a shareholder who holds shares of stock attached to a proprietary lease. Co-ops require shareholders to get the bank to sign a recognition agreement that recognizes that the co-op itself is the first in line should a shareholder stop paying maintenance and mortgage," says Deanna Kory, a broker with Corcoran. "I believe that most boards will only allow a refinancing."

Keep in mind, she adds, that co-ops usually require board approval of loans that shareholders take out, so refinancing may be an easier way to make the most of low interest rates.  


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