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

What is a CEMA loan?

What is a CEMA_

Calling all New Yorkers and New York property owners. Are you familiar with CEMA? It stands for Consolidation Extension and Modification Agreement and can help save borrowers lots of money for tax purposes. Essentially, when you take out a new loan on a New York property, instead of paying taxes on the large new loan, through a CEMA, you can pay taxes on the difference between the two loans. Here’s an example.

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!

Since CEMAs can save borrowers a tremendous amount of money, Visio Lending is going to allow CEMAs. There are just a few caveats to note. First of all, CEMA only applies to the state of New York, so 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.

CEMAs really only make sense if your new loan is larger than your current loan.  Also, if you have 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.

Finally, it is important to note that not all lenders allow CEMAs. If you come to Visio Lending for a new loan and want to do a CEMA, we won’t be able to assist you unless your current lender is willing to do a CEMA.

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.

To learn more about CEMAs, visit Brick Underground. For more recent product updates from the nation's leader in rental loans, check out our July Product Updates blog and for resources, check out our Resources Page.

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Related: Understanding Prepayment Penalties, Understanding Rental Property Refinancing


Topics: Real Estate Investing, Finance, The Visio Box