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Updated Mar. 24, 2022 Read time 6 minReady To Buy a Home?
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Start My ApplicationFor most homeowners and home buyers, CEMA may look like another acronym floating around in the alphabet soup that is real estate lingo.
If you’re not a New Yorker, you may have never heard of CEMA because it’s only available to New York homeowners and home buyers. If you are a New Yorker, whether you’ve heard of it or not, a Consolidation, Extension and Modification Agreement (CEMA) can potentially help you save a significant amount of money on your mortgage costs.
Whether you’re looking to refinance your home or you’re an aspiring home buyer looking for answers, we’ll take a deep dive into CEMA and how you can use it to your financial advantage.
A Consolidation, Extension and Modification Agreement (CEMA) loan is only available to residents of New York State and is used to pay less on mortgage recording taxes. When you refinance your property with a CEMA loan instead of a traditional loan, you can potentially save thousands of dollars.
A CEMA loan involves transferring an existing mortgage from one lender to another lender. And rather than paying mortgage recording taxes on the new mortgage, home buyers only pay mortgage recording taxes on the difference between the unpaid principal balance of the existing mortgage and the amount of the new loan, often resulting in considerable savings.
New York State applies mortgage recording taxes when you register or record a mortgage on a new or existing property purchase.
The mortgage recording tax rate is a percentage of the loan amount. The rate ranges from 0.75% in some counties to 2.175% for mortgages over $500,000 in New York City. [1] The rate depends on the county the property is in and whether the property is in New York City or Yonkers.
A CEMA loan can be used by new home buyers, but it’s more commonly used by homeowners who want to refinance their existing mortgages (more on that later).
If a borrower traditionally refinanced, paying off one mortgage to take out another mortgage, they would pay mortgage recording taxes on the entire amount of the new mortgage. A CEMA loan consolidates an existing mortgage with a new mortgage, and the borrower only pays taxes on the remaining principal. In short, CEMA saves the borrower on taxes.
It’s also important to understand what types of loans qualify for CEMA. Federal Housing Administration (FHA) jumbo loans and conventional mortgages qualify for CEMA. You can use CEMA to get a break on mortgage recording taxes for houses, townhomes and condos, but not co-ops. Some loans, like Department of Veterans Affairs (VA) mortgages, don’t qualify for CEMA.
Let’s look at how much you can save with a CEMA loan.
Let’s say you have a principal balance of $200,000 on your existing mortgage and use a CEMA loan to refinance with a new lender for $300,000. You’d only pay the mortgage recording taxes on the $100,000 difference.
In our fictional scenario, using a CEMA loan results in $3,600 in savings on mortgage recording taxes. Keep in mind that you’ll also be responsible for any applicable closing and CEMA fees, which can vary based on the loan. [2]
To qualify for a CEMA loan:
The main pro of a CEMA loan is its cost-saving benefit. Because you only pay mortgage recording taxes on the unpaid principal balance minus the new loan amount, and not the entire mortgage loan amount, you can potentially save thousands of dollars.
In New York City, the mortgage recording tax rate increases for mortgages over $500,000. The larger your new mortgage is, the more money you’ll save.
In Q4 of 2021, the median home price in the New York-Newark-Jersey City metropolitan area was around $561,000, and homes over $1 million can be the norm, not the exception. [3] If you’re purchasing a home with a lot of equity (for example, a home is worth $2 million and the remaining mortgage balance is $1.8 million), you can save a lot of money using a CEMA loan to purchase or refinance the property.
When used strategically, CEMAs can accomplish goals that are similar to traditional refinancing. When you refinance your property with CEMA, you can lower the interest rate, access extra cash from the property’s equity with a cash-out refinance or adjust the loan’s terms to better suit your needs.
CEMA can also help you save money when you’re buying a new home. In some cases, the seller can reassign their mortgage to you and your lender. This buying option, also known as a purchase CEMA or mortgage assignment, allows you to pay a reduced mortgage recording fee for the new property.
While CEMA can save you money on taxes, it does come with drawbacks.
The process is less straightforward than the traditional refinancing process because you’ll need to get approved to transfer the mortgage (sometimes called a reassignment approval).
The original lender has to approve the transfer, and depending on the lender, this (as well as other parts of the CEMA process) could result in fees. Lenders may charge a flat amount or a percentage of the loan amount for any fees, so it’s worth looking into the cost of fees before you decide on a CEMA loan.
Spoiler alert: Lenders that offer CEMA are hard to find. And it can take anywhere from 30 – 90 days to get a CEMA loan. [4]
Money Fact CEMA AlternativesIf you need to refinance your property quickly and can’t wait for a CEMA loan, consider a cash-out refinance, a streamlined refinance or a rate and term refinance.
