Interest-Only Co-Op Refi?
Our coop needs to refi our underlying mortgage. We are considering an interest-only mortgage as a way to pay for urgent and expensive building repairs without having to raise our maintenance, which is already problematically high. Does an interest-only underlying mortgage look bad to potential buyers & their lawyers + banks? We don’t want this…
Our coop needs to refi our underlying mortgage. We are considering an interest-only mortgage as a way to pay for urgent and expensive building repairs without having to raise our maintenance, which is already problematically high. Does an interest-only underlying mortgage look bad to potential buyers & their lawyers + banks? We don’t want this to adversely affect future sales.
I’m with Sam. I was president of a self-managed brownstone coop for 7 years before buying a house. Every time a unit in our building was on the market, prospective buyers wanted to know about the underlying mortgage and the fact that ours was self-liquidating was a selling point. Seems to me that rates are still relatively low and this is a good time to put the underlhying financing on good footing.
mrcoop, hon, whoever you are,
I was dealing with coop financials when you were still a puppy in the kennel.
It is very common to have an interest only underlying mortgage in a coop and almost all coop underlying mortgages are balloon. The underlying mortgage is typically the single largest expense that the coop has control over. For that reason it’s best to try to reduce the principal, especially if you’re refinancing at especially low rates. Many lenders allow you to set the amortization “term” so that you can amortize some without paying the amount you’d have to for full amortization over the loan term. We recently financed with a 10 year loan (typical) and a 30 year amortization. We’ll pay off enough of the loan over the term that if interest rates are a lot higher when it needs to be refinanced, then the coop can refinance a lower amount and may not have too much of an increase in mortgage expense. Also, if you can get a reasonable line-of-credit, that can enable you to do large projects and assess owners over a longer time frame rather than having to assess the total amount at once. Try Sovereign Bank, we got a better deal from them than with NCB or other retail banks. Good luck!
mrcoop, are you sure you know the background of all the posters? I don’t think so.
I agree with ringo and slopefarm – but agree with mrcoop’s comments that things are different. I bought into a coop (in the early 90’s) in the slope with a balloon mortgage due shortly after I bought. I handled the refi into a conventional 15 yr mortgage and we got to lower everyone’s monthly – plus as time went on it became a selling point that soon there would be no underlying mortgage at all – and that would reduce the monthly payments by nearly another $200/mo per owner. Remember that the rates will be much higher (probably around 2% higher)than an individual mortgage – but still may be much lower than what is in place now and will give you the cash out that you need to pay for repairs and build a reserve. Another note though is that your monthly fees must include some money to be socked away in the reserve fund. To not do that is asking for trouble.
You are getting advice from home owners who don’t understand coops. Interest only is very common and will not be a problem to buyers if your finances are in otherwise good condition.
Homeowners shouldn’t have interest only loans because they are looking forward to a time when they can retire their mortgage as they get older. The coop is an ongoing business. Like most business it will always have outstanding loans. Only the wealthiest Manhattan coops have no mortgage.
try this: get a cash-out refi and pay the bills with that for a while. lower the monthly charges long enough for everyone to sell their pad, and then WAX the new buyers when the re-fi cash runs out. It’s all good.
A normal 15-yr. balloon type co-op mortgage is mostly interest for the first ten years anyway. Go with that.
Yes, an interest only loan would probably look bad to potential buyers.
If you get a line of credit along with the mortgage, the coop can tap into that as needed. most loc’s are interest only and the principal gets folded back into the new mortgage when it is time to renew the mortgage.
Ringo has it right. Do a real refi, not to interest only, lock in lower rates, take out some cash for repairs and reserve if you can do it without raising the monthly over where it is now, build any additional reserve through a low recurring assessment. You can stick a balloon on the end of the mortgage but self-liquidating is a selling point down the road.