If you're looking for a home or refinancing an asset in New York, you may have heard of a CEMA loan. It may appear difficult, but it is really a sensible approach to save money, particularly on taxes.
Get A Free Mortgage QuoteIn this article, we'll go over what the CEMA meaning, how it works, and how it may help you avoid paying additional taxes when you gain a new mortgage.
What is the CEMA Meaning?
CEMA refers to Consolidation, or Extension, and Modification Agreement, and it serves as a means to refinance while paying the costly mortgage recording tax.
CEMAs are used instead of traditional refinancing, although they achieve identical refinancing goals, like decreasing interest rates, altering loan terms, or getting cash through home equity (akin to a cash-out refinance).
Unlike an ordinary refinance, the existing debt obligation (the loan being refinanced) is not paid and replaced with a new loan, but rather transformed into a new loan or a CEMA.
When you choose a CEMA over refinancing there you avoid paying the mortgage recording tax on your current loan balance through merging the new loan with the prior one. That is, you would only pay the recording tax on the difference between the current principal balance and the new loan amount.
The New York Mortgage Recording Tax
New York State charges a levy on loans recorded on state property. The recording tax applies to both purchases and refinances, but not to cooperative transactions. It normally ranges from 1-2% of the loan amount, which may significantly increase your closing fees.
Homeowners who want to refinance their loans are often required to pay the mortgage recording tax. However, there is an alternative to refinancing that may significantly decrease closing fees and taxes: a CEMA loan.
Example 2:
John lives in Brooklyn, New York, and wants to refinance his home loan. He still owes $600,000 on his current mortgage. He’s not taking out any extra money—he just wants to lower his interest rate. So, his new loan will also be $600,000.
In New York City, there’s a tax you usually pay when you take out a new mortgage. For a loan this size, the tax would normally be around $11,550.
But with a CEMA loan, John doesn’t have to pay the tax on the whole $600,000 again. Since he’s just replacing his old loan with a new one, and not borrowing more, the CEMA helps him avoid that full tax.
Instead, he pays a much smaller fee for paperwork and legal steps—saving him more than $11,000.
Why Do People Get CEMA Loans?
In New York, you are charged a mortgage record tax for a mortgage. It is on a sliding scale from 1.8% to 2.8% of the loan amount you intend to borrow, depending on where you live. For instance, on a $500,000 loan, this would come to $14,000 tax-wise, for simply getting a mortgage!
CEMA loans allow you to avoid paying the tax again when you refinance. Rather than paying tax on the entire loan, you simply pay tax on the additional money borrowed.
When Should You Consider Getting a CEMA Loan?
CEMA loans are a good solution if:
- Your mortgage is significant, often reaching at least $400,000.
- You reside in a location where mortgage taxes are high, such as New York City.
- You are refinancing or purchasing a property and want to reduce your closing fees.
- Even with fewer loans, you may save thousands of dollars.
What Will Happen If the CEMA Is Not Approved?
If your CEMA is rejected, experts can help you in achieving your refinancing goals through an ongoing refinance. The Loan Professionals are around to assist you with this process.
Why CEMA Loans Are Helpful.
Here's why CEMA loans are so useful:
-
They Save You Money.
As opposed to paying hundreds in taxes on the whole amount of the loan, you simply pay taxes on the new part. -
Lower Closing Costs.
Buying or refinancing an asset is already expensive. CEMA may decrease your overall out-of-pocket payments. -
Makes Refinancing Easier.
Lower costs may make it simpler to refinance and obtain a lower interest rate.
Smart Tips If You're Thinking About a CEMA Loan.
Here's how to make the most of your CEMA loan:
- Ask early: Not all banks provide CEMA loans, so ask about it right away.
- Consult an experienced lawyer: A CEMA loan expert can save you time and hassle.
- Double-check the savings: Ensure that your mortgage tax savings exceed any additional costs.
- Be patient: The procedure takes time, but the savings that result could make it worthwhile.
Why Does Better Mortgage Automatically Enroll Me in A CEMA?
Better Mortgage is continuously searching for new ways to help our borrowers. Because CEMAs tend to be less expensive for borrowers than typical refinances, we immediately enroll you. As a consequence, we can start the approval procedure with your present lender more quickly, allowing us to estimate the savings potential and provide you with a clear timeline for closing.
Can I opt out of a CEMA?
Yes, if you do choose to opt out, please let your loan officer know.
If you’re buying or refinancing a home in New York, learning the CEMA meaning might help you save big. A traditional mortgage results in a large tax payment based on the full value of the mortgage, but a CEMA loan will only require you to pay tax on the additional amount you are borrowing. That can mean saving thousands of dollars.
CEMA loans are a smart option if you're looking to lower your costs when getting a mortgage. They can help you spend less on taxes and make the refinancing process more affordable. Just make sure to talk with your lender and a real estate attorney early to see if it's a good fit for you.
Knowing the CEMA meaning gives you the power to make better financial choices—and keep more money in your pocket.
