Mixed loans in cooperative housing associations
Those who remember the Potato Cure may also remember the concept of a mix loan. It was a policy intervention that made it more expensive for homeowners to take out mortgages. Now we are introducing a different kind of mix loan to cooperative housing associations, but with the aim of making it cheaper to borrow.
When a cooperative housing association restructures loans, interest expenses fall and at the same time the repayment of the debt rises.
Both of these causes the association’s assets to increase and thus the share values.
In the following, we show the difference between raising a traditional cash loan of USD 10 million with shortened maturity and 2 cash loans, which give the same weighted maturity. We show how much:
- The cost of interest and contributions is lower in the first year
- The installment is greater for the first year
- The total difference is in interest and contribution payments during the term of the loan.
The comparison is therefore between two different new financing, which is used to restructure the association’s current loans with higher interest rates, which is why extra savings in addition to the savings from the loan restructuring, which must be calculated individually.
If the traditional loan is based on 30-year short-term bonds:
Splitting the financing into 2 loans incurs extra costs. The minimum registration fee is USD 1,660 for 2 mortgage letters instead of only 1 mortgage letter. It is also conceivable that the mortgage institution / bank will charge an extra handling fee, because in theory these are two loan cases, but it may be appropriate to ask for offers from other providers as well.
Then, for the same occasion, the association can also have the contribution rate tested. Homeowners’ contribution rates are determined solely on the basis of the loan-to-value ratio in the property, while cooperative housing associations are set the contribution rate individually based on an overall risk assessment. And on the plus side, it counts that the economy of the union improves because of the conversion.
RealRåd has just provided funding for a large cooperative housing association
Where the contribution rate fell from 0.9% to 0.48%. However, part of the story is that some of the financing was changed from variable interest to fixed interest. A healthy cooperative housing association that pays fixed-rate debt and has limited rental income should, in our opinion, pay no more than 0.5% in contributions.
Each time the contribution rate is reduced by 0.1%, the saving for the first year is approx. 1,000 dollar million in debt.
If you live in a cooperative housing association and want a proposal for optimizing the financing, we are happy to look at the possibilities. It does not cost anything. It is a good idea that this is done in collaboration with the board of the cooperative housing association.