Mortgage Recording Tax: What Is It?
Apr 18, 2023 brooklyn,Brooklyn Buyers,Brooklyn Buyers Agent,brooklyn real estate,brooklyn realty,Buying in Brooklyn,finances,mortgage taxes,taxes
When deciding to purchase a co-op, condo, or home in Brooklyn, New York, you can be guaranteed additional fees and taxes will add up. Some of the fees that can be included in your closing cost are the mansion tax, transfer tax, title insurance, and linen tax (for co-ops). You can also be guaranteed a mortgage recording tax if you take out a loan.
What Is A Mortgage Recording Tax?
According to Smart Asset, “Whenever you obtain a mortgage, some state and local governments levy [the] tax to document the loan transaction.” This tax is separate from mortgage interest and other annual property taxes.
Who pays mortgage recording tax in NY?
Since it is state-imposed, you are responsible for paying the tax to the relevant government when you register a mortgage. You should also be aware that residents of New York are entitled to a $30 discount on their payments.
How is Mortgage Recording Tax Calculated?
This tax is calculated as a percentage of the mortgage. The general rule is that if you borrow $500,000 or less, you pay 1.8 percent of the loan as a tax. If you borrow more than $500,000, you pay 1.925 percent. The numbers mentioned include a 0.5 percent state levy.
Do You Pay a Mortgage Recording Tax on a Co-Op?
Planning on buying into a co-op in Brooklyn, NY? No worries. You don’t pay the mortgage recording tax when you buy an apartment in a co-op. This is a big reason closing costs are much lower than when buying a townhome or condo in new york city. The tax only applies you purchase property that you receive a deed on.
Ways To Reduce Or Avoid A Mortgage Recording Tax
When trying to reduce the amount you pay on the tax, you can perform a mortgage assignment called a CEMA loan or a consolidation, extension, and modification agreement. In this type of financial maneuver, the seller’s mortgage is assigned from one lender to another, and the tax for the buyer is calculated on the unpaid principal. This loan has to be agreed upon by both the buyer and seller.
How does a CEMA loan work?
Let’s say the initial mortgage from the seller was for one million, and the seller paid it over time to $900,000. Now the buyer was assigned a mortgage of one million. The buyer then will only pay the difference between the two mortgages of $100,000 at the reduced tax rate of 1.8 percent. The buyer won’t pay twice for the unpaid principal of the original montage when the loan is assigned.
A mortgage assumption is a less common way to reduce and avoid the mortgage recording tax. In this scenario, you, as the buyer, take over the seller’s mortgage at the same interest rate, same payments, and same payment schedule. While it sounds like the best option, the tax would be zero making this strategy increasingly rare
Hint: Make sure you know the difference between a CEMA and a mortgage assumption because many use the terms interchangeably, but are completely different products.
This information can be a lot to process, which is why it’s important to assemble a qualified team to help you make the right choices. Get in touch for our recommended mortgage professionals and for someone to help talk through all this with!
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