Anyone who has ever owned real estate in the State of New York knows just how expensive property ownership can be—in addition to having to pay very high prices to acquire the real estate, to begin with, you’ll also need to pay state and local property taxes, manage high utility bills, and take active measures to carefully manage your budget. In other words, New York property ownership is quite often much more expensive than owning property in other parts of the country.
However, despite the relatively high cost of owning property in New York, there are a few financial vehicles that are only available to New Yorkers. These financial tools, such as a CEMA loan, can help make it easier to gain control of your financial situation and minimize your ongoing expenses.
Of course, as is the case with any financial management tools, you’ll only want to apply for and utilize CEMA loans in certain situations. These loans, like any others, have both pros and cons associated with them. In this guide, we will take a close look at CEMA loans, discuss their merits and virtues, and help you determine if applying for a CEMA loan currently makes sense for you.
What is a CEMA Loan?
A “CEMA Loan” is a Consolidation, Extension, and Modification Agreement, also known as a “mortgage assignment.” Currently, this sort of loan is only available to property owners living in the State of New York and designed to help reduce tax obligations for anyone who is refinancing their mortgage.
In most cases, anyone who pays off an existing mortgage while also taking out another mortgage—which is, essentially, what people are usually doing when they choose to refinance a mortgage—will need to pay taxes for the face amount of both mortgages. However, by using a “CEMA loan”, you can effectively consolidate both mortgages into a single mortgage, which allows you to minimize the amount of taxes you’ll be expected to pay.
Through the use of a CEMA loan, New Yorkers can avoid the often expensive mortgage recording tax—tax obligations will only apply to your unpaid principal, which can potentially save people who are refinancing thousands of dollars.
Calculating CEMA Savings
Let’s take a closer look at how a CEMA loan can potentially help you save money. Suppose that the principal balance for your outstanding mortgage is currently $200,000. Then, suppose you refinance with a new mortgage lender and your outstanding mortgage balance then becomes $300,000. Ordinarily, you could be subject to a tax on the full $300,000 mortgage—however, by using a CEMA loan, you will only be taxed for the difference between the existing mortgage and the new one, which, in this case, amounts to $100,000.
Being able to effectively reduce the principal base upon which you will be taxed can help you save a considerable amount of money. And in New York City, the current mortgage recording tax rate is listed as 1.8 percent for all mortgages below $500,000 (for mortgages over $500,000, it’s 2.915 percent). In other words, for every $100,000 of value you can exempt from these taxes, you can save $1,800. In the example above, the property owner would only pay $1,800 instead of $5,400, a total savings of $3,600.
What are the Benefits of Getting a CEMA Loan in New York?
The most obvious reason you would want to use a CEMA loan is that, in doing so, you can reduce your tax obligations by thousands—or even tens of thousands—of dollars. This is why thousands of New Yorkers decide to take advantage of this unique loan opportunity every year.
By being able to reduce your tax obligations, you will directly decrease the cost of homeownership. In some cases, you can use your savings to pay down other home-related expenses, such as ongoing utility bills. In others, you might want to use these savings to pay down the principal on your mortgage, helping you end your mortgage payment sooner and potentially save thousands of dollars more.
What are the Drawbacks of Getting a CEMA Loan in New York?
Of course, while a CEMA loan will certainly make sense in many situations, these “loans” are not without their fair share of drawbacks. Obtaining a CEMA loan means you’ll need to first refinance your mortgage, a timely and occasionally expensive process, which not all homeowners will always want to do.
Typically, you can expect to pay $500 to $1,000 as a few for getting a CME loan. In some cases, particularly with more expensive properties, you might be asked to pay a specific percentage of the property’s value instead (which will typically end up costing you more). During your cost-benefit analysis, you will need to consider the possible tax savings in addition to the amount you’ll need to pay during the refinancing process—in some cases, it will make sense, in others, it simply won’t.
Other Things to Keep in Mind When Applying for a CEMA Loan
Another thing to keep in mind is that applying for a CEMA loan will usually take a decent amount of time. On the “faster” end, you can expect the entire process to take about six weeks, while on the slower end, the process may take as long as six months—there will be multiple parties involved in this process, which can frequently cause delays.
CEMA loans are just one of the many tools you’ll have to work with while you are in the process of refinancing your mortgage—however, these loans do not represent the only way to reduce future financial obligations. Restructuring your mortgage, applying for a better interest rate, and other changes can potentially help you save, as well.
Andrew is a freelance writer that primarily focuses on real estate and finance topics. He graduated from the University of Colorado with degrees in Finance and Political Science and has since worked in the real estate, life insurance, and digital marketing industries. When he is not writing, Andrew enjoys skiing, playing piano, painting, and spending time with his wife (Maggie) and cat (Crow).