What is a CEMA Loan? Everything You Need to Know

Posted by Hannah Lapin on Jul 2, 2019 9:00:00 AM

What is a CEMA_

A CEMA loan or mortgage is a type of refinancing option in the state of New York. In essence, it can help you to refinance while avoiding paying the full mortgage recording tax on a home loan. This is because you’re refinancing by modifying and combining an existing mortgage into a “new” loan rather than officially replacing it with a new one.

While Visio Lending does not offer CEMA loans, we feel that it’s important for those interested and involved in real estate investing to be informed and well-read on realty subjects. If you want to understand how CEMA loans operate and how they can be used, read on to learn more!

CEMA loan FAQs

What does CEMA stand for?

It’s short for a Consolidation, Extension, & Modification Agreement. As we’ll discuss in the following sections, the name basically describes the process used for this refinancing.

What is a CEMA mortgage?

A CEMA loan is basically an agreement between two lenders to assign a mortgage from one to the other to “take over”. This means that you don’t have to record this as a new mortgage with the state of New York and therefore don’t have to pay a mortgage recording tax on the loan.

By consolidating this older loan with a new loan, you avoid the tax on the existing one. As a result, the tax you pay is only calculated on the difference between the new loan and the existing one that was refinanced.

How can I calculate savings from a CEMA loan?

Let’s say a borrower has an existing mortgage of $400,000 and takes out a new mortgage of $500,000.

Without a CEMA, the tax calculation would be $500,000 x 1.8%, which totals to a whopping $9,000.

With a CEMA, however, the tax calculation would be on the difference between the two mortgages, which in this case is $100,000. So, $100,000 x 1.8%= $1,800.

That’s a total savings of $7,200!

What are the requirements for a CEMA?

The requirements for a CEMA refinance are fairly basic and are as follows:

  • The property is in the state of New York: CEMA loans are only available in this state.
  • The property is a home or condo: co-ops are personal property and don’t have mortgage recording tax, so there is no use for a CEMA loan.
  • All parties approve the process: if one side doesn’t want to go through with this, it can’t happen.

What are the benefits of a CEMA refinance?

The primary benefit of using a CEMA refinancing is potentially saving thousands of dollars by avoiding an additional mortgage recording tax. This will depend on your location and mortgage size, as larger differences in loans and higher mortgage recording taxes will save and benefit more from a CEMA. We’ll discuss in the next section how a higher remaining balance on a loan will also increase the benefits of a CEMA refinance.

What are the drawbacks of a CEMA refinance?

CEMAs can save borrowers a tremendous amount of money; there are just a few caveats to note. First of all, CEMA only applies to the state of New York. If your properties are not in New York, this does not apply. Secondly, a CEMA does not always save a tremendous amount of money. The amount you save depends on how much larger your new loan is than your old loan.

Because of this, CEMAs really only make sense if your new loan is larger than your current loan. Additionally, if you’ve nearly paid off the original loan, the costs and fees associated with a CEMA could total more than the savings.

For instance, in our original example, if the borrower has paid off most of the loan and the balance is $50,000, then the difference between the loans would be $450,000. The tax calculation would then be $450,000 x 1.8, which isn’t a significant enough savings to cover fees associated with a CEMA.

This is why Visio provides financing for broader areas of real estate investing with our other Loan Programs.

How much does a CEMA loan cost?

So what are those fees and what should you expect? This will depend on your lender and area. In particular, working with a new lender instead of the current lender will probably create more fees.

Each of the lenders and their bank attorneys will have CEMA fees, usually $500-$1000 for each. However, these can vary so it’s important to determine them early in the process. In addition, your lender’s attorney will also have a fee (generally around $500) that you will have to account for.

How long does a CEMA refinancing take?

Another “cost” of CEMA loans is the time it takes to complete. It can take longer than a traditional refinancing because of New York State regulations and all of the moving pieces including lenders. Because of this, CEMA loans can often take two to three months from application to completion.

Is a CEMA loan right for you?

As always, it is important to consult with your own professional advisors. We are not attorneys or accountants so please do your own homework on CEMAs. CEMA loans can be incredibly beneficial in the right situation, but for many, it’s not worth it. Visio focuses on broader loans to help investors grow their portfolios with our Rental Property Loan, Vacation Rental Loan, and Commercial Property Loan programs.

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Editor's Note: This post was originally published in July 2019 and has been updated in July 2021 for freshness and accuracy.

Related: Understanding Prepayment Penalties, Understanding Rental Property Refinancing

Topics: Finance