When a homeowner contemplates refinancing a mortgage, the critical calculation is whether the lower interest rate being offered will produce net savings quickly enough to justify the cost of obtaining the new loan.

And while that same consideration applies when a co-op corporation is refinancing the mortgage on its building, other factors often come into play. Among them are whether the existing mortgage carries a prepayment penalty and, if so, whether there is anything that can be done to avoid or minimize it.

There are three basic reasons for a co-op corporation to refinance," said William J. Rank, a certified public accountant in Purchase, N.Y., who specializes in co-ops and condominiums. "One would be to obtain a better rate; the second would be to borrow additional money; and the third would be because the current mortgage is nearing the end of its term."

When a co-op is created, the co-op corporation becomes the owner of the building. And in most cases, he said, a mortgage is used to pay for the purchase.

That mortgage æ called an underlying mortgage æ is for a specific amount of money lent over a specific period of time, with interest. In most cases, however, co-ops' underlying mortgages are not like 15-, 20- or 30-year "self-amortizing" residential mortgages, which are fully paid at the end of the term. Instead, Mr. Rank said, many co-ops take out 10-year interest-only mortgages, in which the entire amount borrowed is still due at the end of the term.

Other co-ops, he said, take out a "balloon" mortgage; that is, while the mortgage repayment schedule may be based on, say, a 30-year amortization schedule, the unpaid balance of the mortgage is "due and payable" in, say, 10 years. "And that balloon payment usually has to be refinanced," Mr. Rank said, adding that when this is done, he advises clients to take out a fixed-rate self-amortizing mortgage that does not have a balloon payment at the end.

In fact, if a co-op is refinancing because the term of the mortgage is about to expire æ or because it needs funds for repairs or capital improvements æ the co-op is pretty much stuck with settling for the best deal it can get at the time it needs the money. And while terms may be good now, they may not be so great a year from now.

In situations where the main reason for the refinancing is that current interest rates are favorable, it would appear the co-op would be is in a better bargaining position. After all, one might assume, the co-op can simply negotiate a new deal with its current lender or find a more reasonable source of financing.

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