CEMA Mortgage Loans for New York

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What You Should Know

  • CEMA, also known as Consolidation, Extension and Modification Agreement, is a refinancing option available for residents of New York State.
  • Refinancing with CEMA provides a reduction in taxes, which may lead to thousands of dollars in savings.
  • Refinancing with CEMA has its drawbacks such as extra fees, so it may not be a financially sound option for every case.

What Is a CEMA Loan?

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CEMA stands for Consolidation, Extension and Modification Agreement. It is an option available for New Yorkers to refinance their loan with reduced closing costs. This reduction in closing costs comes from saving on taxes. Apart from transfer taxes, New York has a tax for originating any new loan in the state, and some counties have an extra tax on top of the state tax. Because of these taxes, people living in New York City pay on average 1.85% of their loan amount towards taxes, which may be quite costly given the prices of real estate in that area.

Pros and Cons of CEMA Loans
AdvantagesDisadvantages
Reduced Tax ObligationsGeographical Restrictions
Reduced Cost of Home OwnershipRefinancing Closing Costs Apply
CEMA Fee Applies

CEMA Loan allows borrowers to bypass paying the full amount in taxes, and instead pay only for the loan difference between the current outstanding principal and a new balance. This provides an opportunity for people to refinance their properties at a better interest rate and not worry about excessively high closing costs.

Even though CEMA allows people to save money, it has certain fees that usually add up to $2,000 - $3,000. With these benefits and costs in mind, CEMA is a useful program that may help many people to refinance their mortgages, but it may not be the best option in every situation. For example, if the refinancing balance is very small, then the closing costs may eat up most of the benefit refinance provides. Additionally, if a borrower is planning to do a cash-out refinance, then they may have to pay high taxes on the balance difference.

Example: When CEMA Does Work

Suppose you have a loan with an outstanding balance of $250,000, and you would like to refinance it for the same amount to lower your interest rate. You know about the CEMA program, and you would like to compare how much you would have to pay with and without the CEMA. Suppose closing costs of refinancing are $7,500, and the CEMA fees account for $1,300.

  • Outstanding Balance - $250,000
  • Refinance Balance - $250,000
  • Closing Costs - $7,500
  • CEMA Fees - $1,300

Using these numbers, it is possible to calculate how much you have to pay in taxes with and without CEMA. Without CEMA, you would have to pay around 1.85% on the new principal. In this example, the principal amount does not change, so the borrower has to pay taxes on $250,000. With CEMA, on the other hand, the borrower has to pay CEMA fee and taxes only on the balance difference. The difference between the balances are closing costs in this case. The following calculations show how the fees and taxes can be calculated for both scenarios.

Taxes & Fees Without CEMA = 1.85% x $250,000 = $4,625

Taxes & Fees With CEMA = 1.85% x $7,500 + $1,300 = $1438.75

In this case, you would have to spend around ¼ on taxes of what you would have to pay without CEMA. This shows that there is a financial benefit to using CEMA although there may be some extreme cases when CEMA is not beneficial. A borrower who is planning to refinance using CEMA should consider other options and pick the most financially viable refinance.

Pros and Cons of a CEMA Loan

CEMA loan allows a borrower to save thousands of dollars in taxes when buying or refinancing a property, but it may not work for everyone. There are restrictions and costs associated with the CEMA loan. It is important to consider both the advantages and disadvantages of a CEMA loan before choosing to get it.

CEMA loans do not have many advantages, but they are quite important. The main advantage a CEMA loan provides is the reduced tax obligations that come with the loan. A borrower has to pay 1.85% of a loan amount in taxes to refinance a mortgage. CEMA loans allow the borrower to refinance their mortgage and pay taxes only on the difference between the two mortgage balances. Given that mortgage balances in New York may add up to millions of dollars, borrowers may potentially save tens of thousands of dollars using CEMA. These savings that come with CEMA may be used towards a down payment or paying off the mortgage balance.

Even though CEMA reduces tax obligations, there are costs and restrictions associated with it. The most significant restriction on a CEMA loan is that the borrower must be a resident of New York State. If a borrower lives elsewhere, they will not be able to take advantage of this program. CEMA loans also have a fee that usually ranges between $2,000 and $3,000. This means that if CEMA provides savings of less than $3,000, then it might not be worth it.

Example: When CEMA Does Not Work

Suppose you have a loan with an outstanding balance of $80,000, and you would like to refinance it for the same amount to lower your interest rate. You know about the CEMA program, and you would like to compare how much you would have to pay with and without the CEMA. Suppose refinance closing costs are $2,400, and the CEMA fees account for $3,000.

  • Outstanding Balance - $80,000
  • Refinance Balance - $80,000
  • Closing Costs - $2,400
  • CEMA Fees - $3,000

Using these numbers, it is possible to calculate how much you have to pay in taxes with and without CEMA. Without CEMA, you would have to pay around 1.85% on the new principal. In this example, the principal amount does not change, so the borrower has to pay taxes on $80,000. With CEMA, on the other hand, the borrower has to pay the CEMA fee and taxes only on the balance difference. The difference between the balances is closing costs in this case. The following calculations show how the fees and taxes can be calculated for both scenarios.

Taxes & Fees Without CEMA = 1.85% x $80,000 = $1,480

Taxes & Fees With CEMA = 1.85% x $2,400 + $3,000 = $3,044.4

In this case, with CEMA you are paying around twice the amount you would have to pay without CEMA. This means that you should refinance your mortgage without CEMA because the fees that apply to originating a CEMA loan are higher than the costs of refinancing the loan.

How to Get a CEMA?

The process for getting a CEMA to refinance is not very complicated, but it requires completing certain steps that a conventional refinance does not require. A borrower should also consider whether they need to get a CEMA in the first place before choosing to refinance using it. The following list provides step-by-step guidance on how to refinance with CEMA.

  1. Consider Your Options

    Before choosing to get CEMA, you should look into other options available for refinancing in your area. Depending on how much your property is worth, outstanding loan balance, and other factors such as your income and the purpose for refinancing, other refinance programs may be more beneficial.

  2. Go Over Qualification Requirements

    There are certain requirements a borrower must meet to qualify for a CEMA loan. The most important requirement is being a resident of New York State. In addition to that, both lenders, the original lender, and a new lender must approve refinance using CEMA. It is important to note that it is possible to purchase a property using CEMA. If you are a first-time homebuyer in New York, the CEMA loan must be approved only by one lender. On the other hand, if you purchase a property using a CEMA loan, the seller must also agree to the conditions that come with a CEMA loan.

  3. Find a Lender

    It might be difficult to find a lender who offers CEMA loans, so it might take time. Even though it might take time to find the lender, you should consider multiple lenders to accept the best offer possible.

  4. Request a CEMA Loan

    When you find an appropriate lender for a CEMA loan, you can request a CEMA loan from that lender. Depending on whether you are buying a property or refinancing, you may need to gather proof that the original lender or a seller of a property agrees for you to finance the activity using CEMA. When the loan is requested, the lender will provide all necessary information on how to close the loan.

Any calculators or content on this page is provided for general information purposes only. Casaplorer does not guarantee the accuracy of information shown and is not responsible for any consequences of its use.