With a mortgage assumption, you take on a seller's mortgage exactly as it was when they originally borrowed from the bank, with the same rate and terms. If this sounds unlikely, it is.
"You really hardly ever never see them," says Melissa Cohn, regional vice president of William Raveis Mortgage.
More common—by far—is the mortgage assignment where you take on a seller's mortgage but the rate and terms are renegotiated. The sole reason for this product, also known as a consolidation extension and modification agreement or CEMA, is to reduce the amount you pay in mortgage recording tax.
This tax is 1.8 percent on mortgages under $500,000 and 1.925 percent on mortgages above $500,000 in New York City. A CEMA is only available to New Yorkers.
Mortgage assumptions are increasingly rare
Most mortgage notes being prepared today state that a loan is not assumable—meaning a buyer can't take on the loan as it was when it was originally written.
"While you can do a CEMA to save on the mortgage recording tax, you cannot do an assumption to save the rate," Cohn says. This is something that's shifted over the past three or four decades as assumable loans have disappeared. Cohn says its largely due to the fact that the industry has changed the way it holds and sells mortgages. "An assumable loan became too complicated," she says.
Now that assumable loans are virtually non-existent in residential real estate, the terms mortgage assignment and mortgage assumption are sometimes used interchangeably for CEMA, although they are technically different products.
Mortgage assignments face delays
Getting a mortgage assignment or CEMA has its own risks right now: Cohn says the volume of mortgages being arranged means it's currently taking a long time to get a CEMA and buyers can find themselves losing their rate lock before the assignment is completed.
There are few real advantages for a bank to help you get a CEMA, in fact Cohn says it's offered as a courtesy. "Giving a CEMA is not a money-making proposition for a bank so they are not going to staff up so they can provide you with a CEMA overnight," she says.
As a buyer you need to figure out whether the amount of savings from the mortgage recording tax is worth the loss of the rate, particularly as rates begin to rise.
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