When it comes to real estate financing, there are several different types of loans that can be used to secure funding. One option that is growing in popularity right now is the Consolidation, Extension and Modification Agreement, or CEMA loan. In this blog post, let’s take a closer look at what CEMA loans are and how they can benefit buyers and sellers.
What is a CEMA Loan?
CEMA loans allow borrowers to consolidate multiple mortgages into a single loan, which can result in lower interest rates and monthly payments. This type of loan is typically used when a borrower is refinancing their existing mortgage, but it can also be used for new purchases.
CEMA loans work by consolidating multiple mortgages into a single loan. The new loan is secured by a mortgage on the property, and the existing mortgages are paid off using the proceeds of the new loan. This allows borrowers to simplify their finances, save on interest and fees, and reduce their monthly payments.
One of the key benefits of CEMA loans is that they allow borrowers to take advantage of the state's mortgage tax laws. In New York, borrowers are required to pay a mortgage tax when they take out a new mortgage. Along with the state tax, New York City, Yonkers and several counties apply an additional local tax on recording a mortgage. In NYC, this tax ranges from 1.8% – 1.925% of the mortgage.
However, when a CEMA loan is used, borrowers are only required to pay the tax on the difference between the old mortgages and the new loan amount. This can result in significant savings for borrowers.
How do CEMA loans benefit sellers?
Another type of CEMA, called a “Purchase CEMA,” involves consolidating two or more loans into one as part of a sale. If you are selling a place but are still paying off your mortgage, you can transfer it to a buyer who needs financing. In a situation like this, the buyer will only have to pay the mortgage recording tax on the new mortgage amount, minus the remaining loan balance being taken on from the seller. As a seller you save money on your transfer taxes, paying taxes on the sales price of the home, minus the remaining mortgage debt that is being transferred to the buyer.
Disadvantages of CEMA Loans
While there are obvious benefits to using a CEMA loan, there are also some potential drawbacks to consider. One of the main disadvantages is that the process of obtaining a CEMA loan can be more complex and time-consuming than other types of loans. Additionally, CEMA loans may not be available in all states or for all types of real estate transactions.