Refinancing your house doesn't have to be as expensive and challenging as it typically is if you're lucky enough to live in the wonderful state of New York. The Consolidation, Extension, and Modification Agreement, or CEMA, allows buyers in New York to save money on closing expenses that include loan origination fees, appraisal fees, and credit report fees, as opposed to most buyers in the U.S. who must pay the full amount of closing costs.
What is a CEMA Mortgage?
Consolidation, Extension, and Modification Agreement is its full name. Loans of the CEMA variety can only be made in New York State. An agreement to combine two or more loans into one new, consolidated loan is known as a CEMA loan. It is made between the existing lender and the new lender. Existing homeowners who want to refinance their homes or potential buyers who want to reduce their mortgage taxes frequently use this.
In general, CEMA will permit the homeowner to pay the calculated NYS mortgage tax solely on the new money or an additional amount above what was originally borrowed if they seek to refinance their existing first mortgage and have already paid the tax in the past. Therefore, with a CEMA loan, you only pay the state and local tax on the difference between your mortgage amount and the amount of the prior loan, rather than on the total amount of the mortgage.
What Are the Benefits of CEMA?
People who are trying to refinance their homes can save money by using CEMA transactions because they only have to pay taxes on the portion of the new loan that is above and beyond their current unpaid principal balance, or "PUB," such as closing expenses or cash out.
In NYC, the Mortgage Recording Tax, also known as the Mortgage Recording Tax, is
- 2.175% of the borrowed amount for new mortgages over $500,000 for 1-3 family residential units and individual residential condo units, and
- 2.05% of the borrowed amount for new mortgages under $500,000 for buyers.
- 2.8% of the borrowed amount must be paid on larger multi-family and commercial properties with new mortgages over $500,000.
The buyer will only be required to pay the mortgage recording tax on the difference between the new mortgage and the seller's existing mortgage principle because the mortgage recording tax in NYC is only levied on new borrowings.
What Are the Drawbacks of a CEMA?
As was already indicated, there are benefits to CEMA loans, the most significant of which is that only the PUB is subject to the mortgage recording tax.
CEMA may, however, lose some of its appeals to some borrowers due to several possible downsides. Saving money compared to a conventional loan is the main objective. But depending on your timeframe and your willingness to pay for fees and other costs (those specific to a CEMA loan), the following four factors may make CEMA a less appealing refinancing option for you:
- If your loan amount is more than your present one, it can be a good idea for you. A $500–$1000 fee or a percentage of the traditional loan's borrowed amount may be charged by banks. Your savings would be based on the mortgage tax levied by your county, the PUB on your existing loan, and the costs associated with your assignment. The paying bank will charge the assignment, which is necessary to be eligible for a CEMA.
- A CEMA may not be the greatest way to save money if your current loan is almost paid off. Although you might believe you'll save a few bucks, refinancing under CEMA might unnecessarily add to your costs. The goal is to reduce spending.
- A CEMA loan can take longer to process
- There are fees associated with a CEMA
CEMA vs. Refinancing?
Which refinancing option—CEMA or standard—should you pick? Overall costs may be lower with a CEMA loan. Avoiding some of the fees connected with standard refinancing is one of the advantages of a CEMA. On the other hand, it also contains specific fees that pay for things like assignments, closing, and processing costs. The cost of the loan may increase by several hundred to several thousand dollars as a result of these costs. You must determine whether the costs are worthwhile in the long run.
Processing a CEMA can take longer;
- To adhere to CEMA regulations, further measures must be taken. If you have to repay the loan sooner than expected, this can be a problem.
- If two distinct banks are involved in the refinancing, problems can arise. A CEMA loan with another outside institution may not be processed by some institutions.
- A broken chain of title could make it more difficult to be approved for a loan.
So, it could be preferable for you to consider other options. A specialist can go over the advantages and disadvantages of any costs and the length of the application procedure in greater detail with you and answer any queries you may have.
How Both Seller and Buyer Benefit from CEMA
Theoretically, CEMA should save the person refinancing money by lowering the size of their mortgage, however, there are costs associated with it. There will be CEMA costs for each lender and their relevant bank counsel. To enable you to make an informed decision regarding whether it makes sense to move forward, these fees can vary and should be identified as early in the loan application process as possible. In particular, if the payoff lender and the new lender are different, then there will be four distinct fees because there will be two banks and two attorneys involved. These costs often vary from $450 to $1100 per item. As a result, the sum of these costs may be between $2000 and $4500. This sum should therefore be viewed as a counterbalance to the tax savings from the mortgage.
The homeowner also qualifies for the refinance title insurance rate, which is typically less expensive than the typical fees, if the refinance occurs less than 10 years after the last one or if they have owned the property (without any deed changes) for less than 10 years.
What Can a CEMA Lawyer Do to Help?
When you are refinancing your property in New York, a CEMA lawyer or law firm is essential for dealing with the NYS mortgage tax. By greatly increasing your odds of being able to pay a smaller mortgage recording tax than you typically would, CEMA may enable you to save money. You should speak with an experienced CEMA attorney before refinancing, even if you are only thinking about it, to go over the advantages and disadvantages and determine whether it is in your best interests.
We are experiencing historical developments on a global and domestic scale, including the virus's major socioeconomic effects on New York City.
The concept of living and working in a city that never sleeps is what makes this area a hotspot for real estate transactions.
This social-cultural revolt caused by the virus epidemic has left previously happy urbanites weary of being cramped in overpriced New York City homes when the reality has started to sink in that they no longer have to accept these hardships only to get closer to the workplace or classroom.
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