Not all lenders permit such transfers, but if both do, borrowers can skip paying a second helping of mortgage recording taxes (they paid the first round when they bought the home).
New York State charges a mortgage recording tax of 0.5 percent of the loan, and with other special taxes added in, New York City residents pay a total of 1.8 percent on loans under $500,000, state tax included, and 1.925 percent for those at or above that amount. Among the various counties, total mortgage taxes in Westchester and Rockland run 1.3 percent, while in Nassau, Suffolk, Dutchess, Orange and Putnam it’s 1.05 percent.
There is no mortgage recording tax in New Jersey or Connecticut, according to Michael Moskowitz, the president of Equity Now, a direct mortgage lender. Co-op owners are also absolved from paying, because they hold shares in a building rather than real property, explained Lawrence F. DiGiovanna, a Brooklyn real estate lawyer.
But for those who are hit with this tax, it can certainly add up at the closing. On a $450,000 refinanced loan, a borrower living in New York City can expect to pay an additional $8,100.
Instead of granting and recording a new loan when a borrower refinances, the assignment process transfers a mortgage to a new lender, which then revises it. Lenders sometimes call the process a “Consolidation, Extension or Modification Agreement,” or “Modification, Extension, Consolidation Agreement.”
It’s important to inquire about a mortgage assignment at the very beginning of the refinancing process, mortgage experts say, because locating and transferring all the necessary paperwork could be time-consuming. If the mortgage has been sold or handed off to a servicing company, the homeowner must get that company to sign on.
Once borrowers have determined that their new and old lenders will work with them on the loan assignment, they must “understand what the potential savings are and weigh that against the overall cost of doing this,” said Marc Kunen, the Manhattan branch manager for Mortgage Master, a mortgage banker.
Yes, there is a cost. Borrowers still have to pay assignment fees. Each bank typically charges several hundred dollars to $1,500, or more, according to Equity Now, which keeps a database on New York-area assignment fees.
If you’re refinancing a low loan balance, say $100,000 or less, it may not be worthwhile to assign, Mr. Moskowitz said, adding that paying the tax may be easier and cost the same or less than the fee.
Borrowers must keep in mind, too, that only the balance from the old loan is sheltered from the mortgage tax. Anything added to the loan amount — perhaps to pay for home renovations or consolidate debts — would be taxed.
Even though most banks have established procedures for assignments, sometimes there are snags that can add days or weeks to the process. “Do not lock in your rate until you understand what the time parameters are expected to be,” Mr. DiGiovanna said.
He also suggests that borrowers examine the new lender’s commitment letter, so they understand the stipulations that need to be met for refinancing.
Occasionally banks will not be able to locate an original loan and related documents. If the original lender still is operating, those documents can be recreated, said Stephen Chiaino, an associate in Mr. DiGiovanna’s law firm. The new lender probably will not accept the homeowner’s documents, unless they are certified copies, he added.
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