A CEMA loan allows you to avoid paying the full mortgage recording tax on a condo or townhouse loan and the savings can be considerable.
A consolidation extension and modification agreement, or CEMA, is a loan only available to New Yorkers. The most common CEMA is offered to those who are refinancing their mortgage. In some unique cases, it is also available to buyers.
Why do owners and buyers use a CEMA? It’s a maneuver—called a mortgage assignment—that can help you avoid paying the full mortgage recording tax on a home loan. It involves assigning a mortgage from one lender to another so your tax is only calculated on the unpaid principal. The savings can be considerable.
“If you pay off one mortgage and take out another, you have to pay the tax on the face amount of each mortgage. When refinancing with a CEMA loan, you take the existing mortgage, consolidate it with the new one, and pay the tax on the gap between the two,” says Miguel Lopez, an attorney who works with National Cooperative Bank.
[Editors note: A previous version of this post was published in March 2022. We are presenting it again with updated information for April 2024.]
For example, if you have a principal balance of $100,000 on your mortgage, and then refinance with a new lender for a mortgage of $200,000, you will only have to pay a mortgage recording tax on the $100,000 difference, rather than the full $200,000.
Mortgage recording tax is only paid on real property, like a condo or townhouse, so co-op owners have no need for a CEMA. This type of loan is therefore unavailable to co-op buyers.
In NYC, the mortgage recording tax rate is 1.8 percent for mortgages under $500,000 (and 2.915 percent for those over $500,000), so with a CEMA, in the example above, you would pay a tax of $1,800 instead of $3,600.
“We do it every time we can,” says Melissa Cohn, regional vice president at William Raveis Mortgage. “The mortgage recording tax in New York is expensive, and you want to do everything you can not to pay it again,” she says.
A CEMA loan does come with its own expenses. If you refinance with your current lender, the process is easier because theres no need to get approval for reassigning the loan. However, if you switch banks, your first lender has to approve assigning your mortgage to the new one, and for this, there can be fees. You’ll need to figure out if its worth it to incur the additional expense.
Banks may charge anywhere from $500 to $1,000, or a percentage of the loan amount, Cohn says.
“Its at the discretion of the bank, so the CEMA makes sense when the cost of doing it is significantly less than the cost of paying the mortgage recording tax,” she says.
There may be other complications if youre refinancing from one bank to another. Some banks will not provide CEMA loans when refinancing with an outside bank, Cohn says. CEMAs can also take a long time to be approved—from six weeks to six months. Another potential issue might arise if the chain of title—the sequential list of owners of a property—is broken.
“You cant ensure that the bank that holds the mortgage has retained all the copies and proper forms,” she says. “Far too often we dont get them—documents get lost, and without a complete, unbroken chain, you cant do a CEMA.”
If you are a homeowner in New York considering refinancing your mortgage, you may have come across the term “CEMA loan” But what exactly is a CEMA loan and could it benefit you? In this article, I’ll explain what a CEMA loan is, who qualifies for one, and when it makes sense to pursue this type of mortgage refinance.
What Is A CEMA Loan?
CEMA stands for “Consolidation, Extension and Modification Agreement.” It is a special type of mortgage refinance that is only available to homeowners in New York state.
With a traditional mortgage refinance you would pay mortgage recording tax on the entire new loan amount. But with a CEMA loan, you only pay mortgage recording tax on the difference between your current mortgage balance and the new loan amount.
For example, let’s say you currently have a mortgage with a $200,000 balance. You want to refinance and take out a new loan for $250,000. With a regular refinance, you’d pay mortgage recording tax on the full $250,000. But with a CEMA loan, you only pay tax on the $50,000 difference between your old and new loan balances.
This can result in significant savings, as the mortgage recording tax rate in New York ranges from 1.8% to 1.925% depending on your loan amount. The more equity you have built up in your home, the more you stand to save with a CEMA refinance.
Who Qualifies For A CEMA Loan?
There are a few basic criteria you must meet to qualify for a CEMA loan refinance in New York:
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You must be refinancing a 1-4 family residential property located in New York state. This includes single-family homes, condos, co-ops, and multifamily properties up to four units.
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The property must be your primary residence. Investment properties do not qualify.
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You must be working with a lender that offers CEMA loans. Not all lenders do, so you may need to shop around.
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You must have an existing mortgage that can be consolidated into the new loan. If you own your home outright, you cannot get a CEMA loan.
One important note – co-op owners cannot use CEMA loans because co-op shares are not considered real property under New York state law. Only condo and single-family home owners qualify.
When Does A CEMA Refinance Make Sense?
In general, a CEMA refinance offers the biggest savings when:
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You live in an area with high mortgage recording taxes – New York City, for example, charges 1.8% on loans under $500,000.
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You have significant home equity built up. The more equity you have, the bigger the tax savings.
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You are refinancing from a lender with high refinance fees to one with lower fees. The CEMA tax savings can offset higher closing costs.
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Mortgage rates have dropped significantly since you obtained your current loan. This allows you to reduce your rate and payment via a refinance.
You’ll also want to weigh the pros and cons:
Pros of CEMA Refinance:
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Pay less in mortgage recording taxes
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Access better mortgage rates and terms
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Consolidate other debts into new loan
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Tap home equity via cash-out refinance
Cons of CEMA Refinance:
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Closing costs and lender fees
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Lower savings if less home equity
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Refinancing process can take 30-90 days
How The CEMA Refinance Process Works
If you determine a CEMA refinance is your best option, here is a quick rundown of how it works:
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Find a lender – Connect with lenders familiar with CEMA loans in NY. Getting quotes from 2-3 lenders is recommended.
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Apply and get approved – Complete a mortgage application providing your financial details. The lender will evaluate you for approval.
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Lender reviews existing mortgage – Your current lender provides payoff information and loan documents to the new lender.
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Underwriting and processing – The new lender thoroughly reviews your application and property appraisal.
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Loan docs prepared – Your loan paperwork is prepared outlining the new loan terms.
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Closing appointment – You review docs with your attorney and sign papers to finalize the new mortgage.
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New loan funds – The old mortgage is paid off and the new CEMA mortgage funds!
The refinance process typically takes 30-90 days from start to finish. It is a bit more complex than a regular refinance but can provide big NY tax savings if done correctly.
5 Tips For Getting The Best CEMA Loan
If you want to maximize savings on your New York mortgage refinance, keep these CEMA loan tips in mind:
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Shop multiple lenders – Compare quotes to find the best rates and lowest fees. Online lenders often offer very competitive CEMA loans.
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Ask about fees – Clarify all charges upfront – application fee, processing fee, attorney fees, etc. Fees can vary greatly by lender.
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Check if your current lender offers CEMA – Refinancing with your existing lender simplifies the process and may have lower costs.
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Review your title and loan history – Any gaps in your title history can complicate the CEMA process.
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Get a NY real estate attorney – They can review your CEMA loan docs and help protect your interests.
Alternatives To CEMA Refinancing
While a CEMA loan can provide big mortgage tax savings, it’s not the only refinance option for New York homeowners. Some other refi options to consider include:
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No closing cost refinance – You pay no upfront closing fees in exchange for a slightly higher rate. This avoids high CEMA lender fees.
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Cash-out refinance – Take cash out of your home’s equity while also refinancing into better loan terms.
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FHA streamline refinance – Simplified refinance option for those with FHA loans. Limited documents and appraisal needed.
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VA IRRRL refinance – Easy VA mortgage refinance with no appraisal or credit check requirements.
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Home equity loan or HELOC – Tap equity without refinancing your first mortgage. Can be fixed or variable rate.
Be sure to check mortgage rates and run the numbers to see which option delivers the most financial benefit to you. A loan officer can help you compare scenarios.
The Bottom Line
A CEMA loan is a mortgage refinancing option exclusively available to New York state homeowners. It allows you to save significantly on mortgage recording taxes when you refinance by only paying tax on your new loan amount minus your current mortgage balance. This can equate to thousands in savings.
Carefully consider both the pros and cons before pursuing a CEMA refinance. While tax savings can be substantial, you’ll want to make sure the numbers pencil out by comparing costs and fees across multiple lender options. Use the tips above to find your best CEMA loan match.
Articles you might also like…
What is a mortgage recording tax? Are there ways to reduce it? A mortgage recording tax is calculated as a percentage of your loan when you are buying a condo or a house. If you borrow more than $500,000, you pay 1.925 percent.
A closing cost guide for buyers and sellers in NYC: When you buy or sell in NYC you expect to pay various taxes and fees. Depending on the building and the market, there may be negotiability around who pays some of the fees and taxes.
What is a cash-out refinance? Are these done in NYC? A cash-out refinance is when you renegotiate your mortgage terms in order to tap into the money tied up in your apartment or house. But its not open to everyone.
—Earlier versions of this article contained reporting and writing by Alanna Schubach.
A purchase or ‘splitter’ CEMA
The other type of CEMA, a purchase CEMA, or “splitter,” involves consolidating two or more loans into one as part of a sale. If you are selling a place but are still paying off your mortgage, you can transfer it to a buyer who needs financing. In a situation like this, the buyer will only have to pay the mortgage recording tax on the new mortgage amount, minus the remaining loan balance being taken on from the seller. As a seller, you save money on your transfer taxes, paying taxes on the sales price of the home, minus the remaining mortgage debt that is being transferred to the buyer.
A purchase CEMA, or mortgage assignment, is different from a mortgage assumption. An assignment allows you to take on someone elses mortgage but negotiate your own rate and terms, and a mortgage assumption is where you take on a mortgage exactly as it was for the original borrower, with the same rate and terms.
These loans aren’t common. “The purchaser takes on the sellers current obligation, but the seller is technically still liable on that note,” Lopez says. “At some point, a bank technically could come and collect on that note. Its very rare that two banks agree to do a purchase CEMA.”
Purchase CEMAs may become more common in the future if interest rates start to climb, Lopez says. “If we get to a point where there is a 12 percent rate on mortgages, and sellers have a 3.75 percent rate, we could see an uprise as the savings outweigh the potential risk.
CEMA Loans Explained
FAQ
What does CEMA mean in real estate?
How does a purchase cema work?
Can a HELOC be a CEMa?
Can you do a cema from to FHA?
What is a CEMA mortgage loan?
A CEMA mortgage loan (Consolidation, Extension and Modification Agreement) is only available for New York residents. This loan option significantly reduces refinancing costs because you’re not paying the full mortgage recording tax. Instead, the borrower pays the difference between the existing principal balance and the new loan amount.
Is a CEMA loan right for You?
For example, if you live in New York, you may have heard of CEMA loans. This is a great mortgage option for those looking to refinance their mortgage loan. Let’s define CEMA loans, talk about what makes them special and go over how to determine whether this type of loan is the right option for you. What Is CEMA?
What are the pros and cons of 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.
What happens when you close on a CEMA loan in New York?
When closing on a CEMA loan, the State of New York and your current lender must execute additional paperwork according to CEMA regulations to get your mortgage and title transferred properly to ensure that you are only paying the mortgage tax on the difference between your new loan and your existing loan.