For shareholders in New York City co-ops, the conventional way to tap into the equity of their apartments has been to refinance their mortgage. That made sense when interest rates were dropping and it was possible to refinance at a lower interest rate, then extract cash without changing the monthly mortgage payments.
“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,” Brittney Baldwin, National Cooperative Bank’s home equity line of credit loan officer, tells Brick Underground.
With interest rates and home values rising, the home equity line of credit, or HELOC, is getting renewed attention. In essence, it allows a co-op shareholder to treat her apartment like a credit card, and it costs just a few hundred dollars to set up.
“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.”
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 – in the 4.25 to 5.25 percent range – depending on a buyer's credit qualifications. 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 up to 20 years,” says Baldwin.
While some co-ops don’t allow HELOCs, most give the green light and don’t even ask what the money is for, says Baldwin, noting that “occasionally, they will limit the amount you can borrow to 50 percent of your apartment’s appraised value.”
And a HELOC is not your only option. NCB is now offering a home equity loan with 5-, 10- or 15-year fixed-rate options, depending on credit qualifications. "Typically,” says Baldwin, “if the [shareholder] has a set project and they want a fixed rate, they choose a home equity loan."
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