When to Refinance an Underlying Mortgage New Rules, New Regs

For many, the idea of getting a new mortgage on a home or apartment is enough to cause even the heartiest soul to break out in a light sweat. Now imagine refinancing a mortgage for a multimillion-dollar co-op building, and the light sweat may turn cold.

Despite the intimidation factor, with the right mix of expert advice and sensible planning, refinancing an underlying mortgage for even a large co-op community can be undertaken with a minimum of stress and angst.

The Basics

An underlying mortgage is “A commercial loan on a piece of real estate, owned by a corporation,” says Pat Niland, president of First Funding of New York LLC, a commercial mortgage firm. In a co-op building with one hundred units, the underlying mortgage will be the only one on the building itself. “That loan is senior to all other types of liens,” says Gregg Winter, president of the Manhattan-based Winter & Company, specializing in real estate loan financing. And, he adds, “It is a form of debt that is proportionately shared (by residents) according to the number of shares in the whole building.”

This is completely different from what takes place in a condo community, where every unit owner would have their own individual mortgage. In fact, overarching loans for an entire condo association or community are exceptionally rare. While Winter says he has done literally hundreds of underlying mortgages for co-ops over the course of his career, he has helped secure loans for less than five condo associations in that whole span of time.

Why Refi?

Refinancing a mortgage is a serious and time-consuming process, one that for most New York buildings requires making decisions about millions—and sometimes tens of millions—of dollars. Co-op boards and management will undertake securing a new mortgage for any number of reasons. One might be that their previous loan is coming due. “That is one of the top reasons for refinancing,” says Niland.


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  • After reading through this article both in the print and on-line editions, I felt an uncomfortable perception of conflicts of interest which need to examined. I am referring to the statements made by Pat Niland and Gregg Winter regarding the advantages of a 10 year (assumed interest-only mortgage) versus a 30 year (assumed self-amortizing) mortgage. Mr. Winter states that a Co-op mortgage has a certain resemblance to a car lease and that Co-ops are essentially leasing money for a certain period of time. Mr Niland makes the assertion that a board cannot make a decision in 2011 that will be valid for the building in 20 or 30 years, and that the desire to go for a longer period is to save closing costs, but that the decision for a longer term mortgage will end up costing the Co-op more. The comparison between leasing an automobile and a Co-op's "leasing money" is arguably false. At the end of a car lease, the vehicle is returned to the lessor, and the lessee is free and clear of any further obligations. The same is not true of a Co-op building. At the end of a 10 year interest-only mortgage, the board cannot simply return the building to the mortgage holder in lieu of paying off the mortgage amount. Well, it could, but all the shareholders would be rather upset with the board. With an interest-only mortgage, a Co-op board is not just blithely "leasing money" but is instead kicking the mortgage day of reckoning 10 years down the road. As for a Co-op board's risk of making a decision in 2011 that would not be valid 20 or 20 years later, the exact opposite is true. The board has no way of knowing the interest rate in 10 years. A 4% rate today could quite easily double to 8% in 10 years. It could be even more during a period of high inflation. The Co-op with a 10 year mortgage will have a very small window in which to refinance the mortgage. With a self-amortizing mortgage, the rate is both fixed for the life of the mortgage *and* the underlying principle owed on the building is paid down. This is much more conclusive to long-term planning and budget stability than playing interest rate roulette every 10 years. An additional advantage with a 30 year mortgage is that if interest rates drop during the life of the mortgage, the mortgage can be refinanced on more favorable terms without the egregious pre-payment penalty described in the article. Finally, how, exactly, does opting for a one-time longer term mortgage end up costing more than paying new closing costs decade after decade after decade? The overriding concern I have is that both Mr Winter and Mr Niland, as principles in commercial mortgage and real estate loan companies, clearly have it in their company's best interests if Co-ops closes on a new mortgage every 10 years in perpetuity instead of a single 30 year commitment that never has to be renewed. The statements made by Niland and Winter need to be much more fully justified instead of simply accepted as true.
  • I keep getting emails to refinance at rates like 3.25 or 2.87. I figure they are shorter rates. What is the range for a 30 year $300,000 or less loan these days given excellent credit, for a co-op unit.(if one wanted to refinance)