CEMA mortgage in New York: How it works and saves money

A consolidation, extension and modification agreement (CEMA) is a New York–specific way to refinance that can reduce how much mortgage recording tax you pay. Instead of taxing your entire new loan, a CEMA typically taxes only the “new money” you borrow above your current unpaid balance.

Learn more about how CEMAs work, who qualifies, purchase CEMAs, timelines, fees, and a step-by-step savings example.

Key takeaways:

• A CEMA loan allows homeowners in New York state to combine their loans when refinancing to reduce their mortgage tax bill.¹
• CEMA loans involve your original lender transferring your loan to your new lender and consolidating it with your new loan in a single mortgage.
• These loans often require fees to your lenders and usually take longer than a traditional refinance.

What is a CEMA mortgage?

A CEMA is an agreement between the lender of your current mortgage and the lender of your new mortgage to consolidate your old and new loans into a single mortgage, allowing you to pay tax only on the amount of your new loan that exceeds your old loan balance.

When you take out a new mortgage in the state of New York, you must pay a mortgage tax. This applies whether your new loan is used to buy a home in New York or refinance. The tax is typically 0.5% of the mortgage amount.

In addition, many New York municipalities charge their own mortgage tax. In New York City, the rate is 1.8% of the borrowed amount for loans of less than $500,000, and 1.925% for loans of $500,000 or more.

How a CEMA mortgage works in New York

Here’s a breakdown of what’s involved when getting a CEMA mortgage in New York.

Lender request and title verification

First, the new mortgage lender identifies your existing mortgage, runs a specialized title search to verify its history, and requests the original loan documents from your current lender to review them for assignability.

CEMA mortgage assignment

The original loan is reassigned or transferred by the old lender to the new lender. You generally pay mortgage tax only on the portion of the new loan that exceeds the unpaid principal balance being assigned from the existing mortgage.

Gap mortgage and consolidated lien

A “gap mortgage” is created to cover any money you borrow beyond the original loan balance. Your new lender then executes a CEMA agreement, which legally combines your original mortgage and the gap mortgage into a single consolidated lien with a single monthly payment.

CEMA mortgage tax savings example

Say you have a $400,000 balance on a mortgage for a home in New York City, and you are refinancing to a new loan for $475,000.

Without a CEMA, you’d pay mortgage tax on the full amount of the new mortgage. With a $475,000 loan taxed at 1.8%, that’s $8,550.

With a CEMA, you'd only pay the mortgage tax on the new money, which is $75,000. At 1.8%, that would cost you $1,350 – a savings of $7,200.

Who can qualify for a CEMA loan?

To be eligible for a CEMA loan, there are a few specific parameters to meet.

• The home must be in New York.
• The property must be a single-family house or condo, as co-ops don’t pay these taxes.
• You must find a lender offering a CEMA loan.
• Both your original lender and your new one must agree to the debt transfer involved in a CEMA loan.

Rocket Mortgage offers CEMA loans and can help you determine if this is the right option for you.

Why co-ops don’t qualify

Co-ops are ineligible for a CEMA because the mortgage tax applies to real property only. When you buy a co-op, you're not buying real property – you're buying a share in a corporation. The law regards co-ops as personal property, which makes them exempt from the recording tax.

Using a CEMA mortgage to buy a home

A CEMA loan can also be used to buy a home. Instead of the seller paying off and discharging their existing mortgage at closing, the seller’s lender assigns the loan to your new lender via a CEMA purchase loan – often called a “splitter.” Your new loan is consolidated on top of the assigned balance.

This requires the seller and your lender to cooperate in assigning the loan, says Jonharold Cicero, a real estate attorney and partner at DL Partners in New York City.

It also requires extra lead time. “That’s because assembling the assignment documents from the payoff lender can take weeks,” Cicero says.

Buyer and seller savings considerations

With a CEMA purchase loan, you get the same mortgage-recording tax savings, paying tax only on the difference between the new loan and the balance assigned. The seller benefits, too, because transfer taxes are calculated on the reduced taxable amount, which reduces the seller’s closing costs.

What are the fees associated with CEMA mortgages in New York?

Lenders typically charge processing fees and legal or attorney fees to ensure the loan transfer goes smoothly. The amount you pay will depend on the lender, but you’ll most likely need to pay fees to both your current and new lender.

You also may have to pay recording fees to legally record your new loan with New York and local government agencies. These fees don’t include other up-front closing costs that you’ll need to pay for a refinance.

How a CEMA mortgage can affect your payment

A CEMA loan decreases your overall monthly payment. That’s because it reduces the amount you need to borrow, as you don’t have to roll thousands of dollars in mortgage recording taxes into your new principal. Your loan balance remains smaller because you preserve your equity instead of financing costly state and local taxes. And that equates to a lower monthly principal and interest payment.

Additionally, your payment can be even lower if you lock in a market rate below your original loan rate, because a CEMA results in a single, consolidated lien with a single interest rate.

How long does it take to close on a CEMA loan?

A CEMA loan takes longer than it takes for a traditional refinance. Lenders need to work together to send, receive, and process documentation, and to ensure the final closing complies with New York law.

It could take 45 to 60 days for your current lender to send all required documents to your new one. All in all, it could take up to 75 days to close on a CEMA loan. On the other hand, it’s not uncommon for a standard refinance to take 15 to 30 days.

When is a CEMA refinance worth it?

Crunch the numbers carefully before you commit, because a CEMA only makes sense when the savings clearly exceed the costs.

First, you want to calculate how much a CEMA loan will save you on mortgage tax. Do this by calculating your estimated tax with a CEMA loan and subtracting that from how much tax you'd pay without one, Cicero says. Then, add up the CEMA costs: the assignment fee, additional attorney fees, and extra title and recording charges. Subtract this second sum from the first sum.

“A healthy positive figure means the CEMA is worth it,” Cicero says. “If your fees eat up most of the savings, it isn’t worth it. As a rule, the larger your balance, the more compelling the CEMA, although on small balances the fixed fees can wipe out the benefit.”

Pros and cons of CEMA loans

As with all types of loans, CEMA loans have advantages and disadvantages.

Pros

• Lower mortgage tax payments. You may be able to save a significant amount on mortgage tax with a CEMA. Because you’re taxed only on the difference between your current principal balance and your new loan amount, the result is lower than being taxed on the entire new loan.
• Save on loan costs. As with a traditional mortgage refinance, a CEMA loan allows you to swap out your current loan terms for a new loan with better terms, such as a lower interest rate, to save money.

Cons

• Lender fees. You must pay fees to get a CEMA loan. Once you talk to your existing lender and the new one about the figures, you need to factor this cost into your decision about whether a CEMA loan saves you more than a traditional refinance.
• Long processing time. A CEMA loan may be more complex than a traditional refinance, as the original lender needs to work with the new lender to review documents and ensure all documentation is accurate. While a regular refinance may often close within 30 days, a CEMA loan may take up to 75 days to close.
• You could be denied. Your existing lender must agree to a CEMA loan. If they don’t, you may be unable to move forward with anything other than a traditional refinance.

FAQ

Here are answers to common questions about New York CEMA loans.

What is the purpose of CEMA?

The main purpose of a CEMA loan is to save on taxes. New York imposes a mortgage recording tax, which can be one of the single largest closing costs a borrower faces. A CEMA allows you to avoid paying that tax twice on the same debt by carrying the existing mortgage forward as a continuing lien and being taxed only on new borrowing, rather than paying off the old loan and getting taxed all over again on the new amount.

What does ‘new money’ mean in a CEMA mortgage?

If you want to borrow home equity or increase your total loan amount, the amount of your new loan that exceeds your old loan balance is considered “new money,” and you must pay New York’s standard mortgage recording tax on it.

Where do I get a CEMA mortgage?

CEMA loans are available only for properties in New York State. Not all mortgage lenders in New York offer CEMA loans. Rocket Mortgage does. We can help you determine if you qualify and whether it’s the best option.

The bottom line: CEMA loans can make refinancing more affordable

A CEMA loan can help make refinancing less costly for New York homeowners, who can save thousands of dollars on mortgage recording taxes by applying the tax only to new money. Though the process may take longer and involve coordination between multiple lenders, the significant tax reduction often outweighs the wait. However, whether you should pursue a CEMA loan will depend on your eligibility, lender participation, added fees, and whether you can accept a longer closing timeline.

Ready to make a move? Explore your borrowing options today with Rocket Mortgage.

¹Refinancing may increase finance charges over the life of the loan.