Refinancing Your Mortgage

By Randall A. Pentiuk

With the unprecedented and sustained drop in interest rates, a growing number of cooperatives are examining the possibility of refinancing their original mortgages. Many of our clients have found mortgages which cost the same or less than the existing mortgage. This makes it a popular option, since it allows for an infusion of capital that not only retires the old debt but also funds capital improvements to upgrade the property.

The first step in the process is to obtain proposals from various lenders. Most cooperatives are familiar with the National Cooperative Bank, located in Washington, D.C. This lender has the advantage of being well versed with cooperatives, which makes it easier to deal with. The officers of NCB are knowledgeable of the inner workings of cooperatives, and have done these refinancings many times. Moreover, NCB is interested in becoming a major force in share loans, so new members can finance loans to acquire their memberships, a tool that is rather appealing to cooperative boards as an aid to improving the marketability of their properties.

However, we have seen several other lenders who are aggressively pursuing loans to cooperatives. We are compiling a growing list of these lenders and will be happy to furnish this information. Many times, these lenders have offered interest rates that are lower than the NCB proposal. Thus, it pays to shop around.

Once a lender has been identified that offers a reasonable proposal, two steps should be undertaken. One is to determine the monthly payment, since a selling point to the membership is that carrying charges will not be increased because of the new loan. A second task is to share the proposal with the membership.

Under most bylaws, the decision to refinance rests with the cooperative board. HUD has tried to argue with us that the membership must approve the new loan; however, we have successfully challenged this position. HUD has acquiesced to our position, and now simply wants to see that the membership is aware of the refinancing. It wants to see that an informational meeting was held, with proper notice. While we do not believe that HUD can insist on this, we advise our clients to hold an informational meeting to advise the membership as a matter of political expediency and pragmatism.

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