Watch those Refinancing Expenses


With interest rates still low, some New York homeowners are seeking to refinance their existing mortgage.  If refinancing is on your radar screen, and if you’re careful, you may not have to pay the mortgage recording tax again when you refinance.

New York state charges a recording tax on new mortgage debt.  In New York City, the rage is 1.8% of the loan amount for mortgages under $500k and 1.925% above $500k.  Borrowers who already “paid the tax on an existing mortgage is entitled to an exemption from payment of the tax with respect to an existing principal balance a second time” according to attorney Guy Arad, with Adam Leitman Bailey.

Watch out – if you’re switching lenders when you refinance, you might have to pay the tax anyway.    In order to skip the tax when switching lenders, you must get your existing lender to assign or transfer the mortgage to the new lender.  The new lender would then rewrite the mortgage to meet the new terms.  The catch is, some lenders don’t always agree to do the assignment.

Some things to keep in mind:

  • If the lender agrees to assign the mortgage, the extra paperwork will take more time.  Make sure your closing date is set with this in mind.
  • Both lenders must be present at closing.
  • There will likely be extra legal fees and assignment fees, which should be considered when figuring the tax savings.  Sometimes the savings is not worth the headache.
  • If the new loan is larger than the outstanding loan, you will be taxed on the difference.
  • If you think you will be refinancing sometime down the road, find out what the lender’s policy is on transfers before signing the mortgage.

Based on New York Times article by  Lisa Prevost.

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