What is a CEMA loan, and when does it make sense to get one?

A consolidation extension and modification agreement, or CEMA, is a loan only available to New Yorkers. The most common CEMA is offered to those who are refinancing their mortgage. In some unique cases, it is also available to buyers. 

Why do owners and buyers use a CEMA? It’s a maneuver—called a mortgage assignment—that can help you avoid paying the full mortgage recording tax on a home loan. It involves assigning a mortgage from one lender to another so your tax is only calculated on the unpaid principal. The savings can be considerable.

"If you pay off one mortgage and take out another, you have to pay the tax on the face amount of each mortgage. When refinancing with a CEMA loan, you take the existing mortgage, consolidate it with the new one, and pay the tax on the gap between the two," says Miguel Lopez, an attorney who works with National Cooperative Bank.

[Editor's note: A previous version of this post was published in March 2022. We are presenting it again with updated information for April 2024.]

For example, if you have a principal balance of $100,000 on your mortgage, and then refinance with a new lender for a mortgage of $200,000, you will only have to pay a mortgage recording tax on the $100,000 difference, rather than the full $200,000. 

Mortgage recording tax is only paid on real property, like a condo or townhouse, so co-op owners have no need for a CEMA. This type of loan is therefore unavailable to co-op buyers.

In NYC, the mortgage recording tax rate is 1.8 percent for mortgages under $500,000 (and 2.915 percent for those over $500,000), so with a CEMA, in the example above, you would pay a tax of $1,800 instead of $3,600.

"We do it every time we can," says Melissa Cohn, regional vice president at William Raveis Mortgage. "The mortgage recording tax in New York is expensive, and you want to do everything you can not to pay it again," she says. 

A CEMA loan does come with its own expenses. If you refinance with your current lender, the process is easier because there's no need to get approval for reassigning the loan. However, if you switch banks, your first lender has to approve assigning your mortgage to the new one, and for this, there can be fees. You’ll need to figure out if it's worth it to incur the additional expense.

Banks may charge anywhere from $500 to $1,000, or a percentage of the loan amount, Cohn says.

"It's at the discretion of the bank, so the CEMA makes sense when the cost of doing it is significantly less than the cost of paying the mortgage recording tax," she says. 

There may be other complications if you're refinancing from one bank to another. Some banks will not provide CEMA loans when refinancing with an outside bank, Cohn says. CEMAs can also take a long time to be approved—from six weeks to six months. Another potential issue might arise if the chain of title—the sequential list of owners of a property—is broken.

"You can't ensure that the bank that holds the mortgage has retained all the copies and proper forms," she says. "Far too often we don't get them—documents get lost, and without a complete, unbroken chain, you can't do a CEMA."

A purchase or 'splitter' CEMA

The other type of CEMA, a purchase CEMA, or "splitter," 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.

A purchase CEMA, or mortgage assignment, is different from a mortgage assumption. An assignment allows you to take on someone else's mortgage but negotiate your own rate and terms, and a mortgage assumption is where you take on a mortgage exactly as it was for the original borrower, with the same rate and terms. 

These loans aren’t common. “The purchaser takes on the seller's current obligation, but the seller is technically still liable on that note," Lopez says. "At some point, a bank technically could come and collect on that note. It's very rare that two banks agree to do a purchase CEMA."

Purchase CEMAs may become more common in the future if interest rates start to climb, Lopez says. "If we get to a point where there is a 12 percent rate on mortgages, and sellers have a 3.75 percent rate, we could see an uprise as the savings outweigh the potential risk.

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—Earlier versions of this article contained reporting and writing by Alanna Schubach.