Apartment Refinance

Do you own an apartment building and are considering refinancing your mortgage? If so, here is some information about the steps you need to take in order to do so, as well as some tips and suggestions to help with the refinancing process.

In case you’re wondering why you would consider refinance as a business decision, there are several reasons. First, refinancing may provide you with a lower interest rate (this is probably one of the biggest factors property owners consider). Second, you may want to make the move from an adjustable rate to a fixed mortgage rate, or vice versa. Third, extending the term of your loan, which could result in a lower monthly payment (ie: if you went from a 10 year payment plan to a 15 or 20 year plan). Fourth, reducing the term of your loan. Doing this would increase your monthly payment, but you would also be able pay off the loan in lesser time than before. Fifth, you may need to refinance your mortgage, due to legal reasons. Examples of legal reasons could be marriage, divorce, or change in ownership. Finally, refinancing could be option for tax purposes (consult with your tax advisor), or in case you have done improvements or upgrades to your property, thus increasing the equity value of it.

Two common types of refinancing are “No-closing Cost” and “Cash-Out”. Borrowers with the No-Closing Cost type of refinancing usually pay fewer fees in the beginning to be able to get the new mortgage loan. As a matter of fact, as long as the current market rates are less than your existing rate by at least 1.5 percentage points, it can be financially beneficial to refinance the existing debt because there is little or no cost involved. However, you should be aware that many lenders fail to disclose the fact that any money you might save initially is actually being collected through what is known as yield spread premium or YSP for short. Yield spread premiums are cash that a mortgage company receives by convincing a borrower to take out a loan with a higher interest rate. So be aware of this prior to signing any contracts or making any deals official. With the Cash-Out type of refinance, you find any help with lowering the monthly payment or having shorter mortgage periods. However, in the case of apartment property, it can be used for improvements, or credit card debts and other consolidation of debt loans. If the borrower is able to qualify with their property equity; they can have the option to refinance with a new loan amount that is larger than their current mortgage and still be able to keep the cash differences. As with the other type of refinancing, it’s essential that you get all the information you need and carefully weigh the pros and cons of the deal, before you take the next step.

Finally, it’s important to know that refinancing lenders will many times require an upfront payment of a specific percentage of the total amount of the loan as part of the process of refinancing. Usually, this amount is expressed in “points” (also referred to as “premiums”), with each “point” being equivalent to one percent of the amount of the total loan. Therefore, if the option for refinancing selected involves the borrower to pay three points at the time of the loan, the borrower will have to pay three percent of the total amount of the loan. Most lenders offer different options of points and interest rates. When a borrower pays more points it usually allows the borrower to get a lower interest rate than he or she would be capable of getting if they paid fewer or no points. However, some lenders may offer to help with financing parts of the loan themselves, therefore producing so-called “negative points” (also known as discounts). The choice paying points or not paying points, and what and how many points should be taken in consideration that people tend to trade a higher upfront cost in exchange to have a lower monthly premium later on. Points can also be paid out of the cash that is saved by refinancing the loan initially.

By refinancing apartment mortgages this can be a complicated and even risky business decision, however, it may also be a very wise one. Just be sure to carefully weigh out all options and don’t be afraid to consult with someone who has knowledge or expertise in the field, before you make any major financial decisions.