Friday, August 20, 2010

Mortgage tax on refinance, New York

Refinancing is the hot topic these days with interest rates at a record low of 4.5%.  The cost benefit analysis is the lower monthly payments vs transactions costs.  With transaction costs, mortgage tax is a huge component.

Owners refinancing their mortgage should take special care to avoid paying mortgage tax on the refinance.  In New York, mortgage tax is typically about 1.85% of the mortgage amount.  For example, on a $800,000 loan, the mortgage tax could be almost $15,000.

To avoid paying mortgage tax, get a good lawyer to do an assignment of mortgage.  Essentially, this is to get the old lender to assign the old mortgage to the new lender.  This is sometimes known as a MECA (modification, extension, consolidation agreement).  The owner then only pays tax on the closing costs of the deal as opposed to on the whole refinanced amount.  A huge huge savings.

Disclaimer:  I'm just a RE broker and property investor.  Not a lawyer or CPA hence am not legally qualified to provide the above advice.  Always consult your attorney or CPA for such matters.

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