Mortgage refinancing now makes sense for NY co-ops

Real Estate Weekly, June 11, 2003 by Edward III Howe

The past two years have ushered in a "golden age" for the mortgage refinance industry, primarily driven by steadily falling mortgage interest rates, which have now dipped to 40- year lows. To take advantage of these historically low interest rates, housing cooperatives throughout metro New York are refinancing existing mortgages in record numbers.

However, the financial savings that lower interest rates yield are only part of the story in the ever-changing world of cooperatives.

While interest rates have continued the downward spiral, most other fixed expenses a cooperative must address have spiked drastically during the same two-year period.

Insurance rates, for example, have increased anywhere from 50% to 100% since the terrorist attacks of Sept. 11, 2001, while real estate taxes increased by 18.5% in just the past year. Compounding the fiscal challenges, unforeseen expenses such as labor costs, building supplies, and energy expenses, have also increased dramatically due to the long, harsh winter.

Since housing cooperatives cannot fully control or effectively cap these fixed costs, they have turned their attention to the only controllable option currently available: refinancing mortgages to lower the cost of the debt. By doing so, housing cooperatives have experienced savings of up to 40%. Moreover, when compared to refinancing transactions of just seven years ago, today's significant savings become even more impressive.

An example of the healthy savings cooperatives can now enjoy by refinancing existing mortgages is illustrated by a $1 million loan recently closed by an Upper West Side cooperative. The significantly improved financial package included an annual mortgage payment decrease from $92,000 per year to $62,000 per year, a 30% reduction in mortgage costs, and a substantial saving for the cooperative.

The Upper West Side cooperative is certainly not alone in deciding to pursue refinancing this year. In the first half of 2003, projections illustrate an increased volume of mortgage refinancing, set to surpass last year's robust activity by more than 50%. As, a leading provider of financing to housing cooperatives, National Cooperative Bank, for example, expects to be responsible for more than $350 million in financing transactions during this period, closing loans ranging from $350,000 up to $20 million. These numbers represent more than 25 transactions per month projected during the first half of 2003.

The swell of refinancing activity does not appear to be abating any time soon. In reality, the vibrant trend is predicted to continue throughout 2003, as even more cooperative boards implement short and long-term strategies to reinforce the continued financial health of their properties.