By Michael Most
When Refinancing your Mortgage in New York and the surrounding boroughs there are always added costs to consider. Read this rundown of the refinancing process to help determine whether it’s a cost-effective option for you.
Let’s start with a straightforward scenario: a client purchases their home and takes a loan with Citibank, for example. They sign a note and mortgage document which are referred to as collateral documents. The original note stays with Citibank and the mortgage document is recorded with the county clerk. At the time of the purchase, the buyer will pay a mortgage tax of 1.8% which covers taxes for the State and City of New York. The State charges .8% of the purchase and the City charges 1%, together yielding a 1.8% tax. For all loans closed in New York State and City, you are required by law to pay these taxes which help generate public revenue. That said, if you buy property outside of the City, you only pay the .8% State Tax.
When it comes time to refinance, the homeowner often tries to avoid paying this tax for a second time. To avoid paying the mortgage tax again, you’ll have to go through the process of attaining CEMA – a Consolidation Extension Modification Agreement. In essence the new refinance loan will take the balance left on the existing loan and consolidate it with any new monies if it’s a cash out, or no new monies if they are just lowering the rate or term of the loan. Transferring the old collateral to the new collateral through an assignment avoids paying the mortgage tax a second time.
Many clients prefer to stay with the bank they originally closed with because it often ensures a smoother CEMA process and it typically allows them to avoid paying the legal fees incurred when a new bank goes about getting the loan’s collateral documents.
Should rates be more competitive at another bank, there are many options to refinance your loan with another bank. To do this, your current bank will have to prepare an assignment for the new Bank.
The costs associated with refinancing with a new bank include attorney fees and processing fees which your old bank will charge you. These fees cover the cost of retrieving the collateral documents and the costs of preparing the CEMA assignment. The average cost for both range from $750.00 – $1,100.00 depending on the bank.
The average loan size in New York and the 5 boroughs is above $400,000 so to save the tax of $7,200 at the cost of $750.00 – $1,000.00 is well worth it.