HELOC vs Home Equity Loan: Which to Use, and the NYC Tax
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A HELOC is a revolving credit line secured by your home, usually variable-rate, drawn as needed over about 10 years. A home equity loan is a lump sum at a fixed rate. Both max out around 85% of the home’s value minus your mortgage balance. In New York, recording tax hits a HELOC’s full credit line, not what you draw.
We represent NYC buyers and owners, and this question comes up most from people who bought years ago and now have real equity. Both products borrow against the same thing. They just hand it to you differently.
One hands you the money, the other hands you a faucet.
HELOC vs home equity loan, side by side
The difference is structure. A home equity loan is a closed-end loan: you get the full amount at closing and repay it on a set schedule. A HELOC is open-ended: an approved limit you borrow against, repay, and borrow again, like a credit card tied to your house.
| Home equity loan | HELOC | |
|---|---|---|
| How you get it | Lump sum at closing | Draw as needed, up to a limit |
| Interest rate | Usually fixed | Usually variable |
| Monthly payment | Fixed and predictable | Varies with the balance and rate |
| Structure | One repayment schedule | Draw period, then repayment period |
| Best for | A known cost, done once | Costs spread over years, or unknown totals |
Home equity loan vs heloc, when each one wins
Pick the one that matches the spending. Predictable debt for a predictable project.
A home equity loan fits a single, known expense: a $60,000 renovation with a signed contract, a specific debt payoff, one tuition bill. You lock a rate, you know the payment, you’re done.
A HELOC fits an open-ended or phased need. Think a gut renovation paid in stages, a business with lumpy cash flow, or a cushion you want available but not drawn. The tradeoff is a rate that moves and a payment that can jump.
If your real goal is a lower rate on your whole mortgage, our guide to when to refinance covers that instead. Older owners weighing a different route should read our reverse mortgage guide.
How much can you borrow with a home equity loan
Start with the ceiling. Most lenders cap your combined loan-to-value at 80% to 85% of the home’s value, and a few credit unions go to 90%. The bank wants a fifth of the house left as a cushion.
The math: take 85% of the home’s value, subtract what you still owe on the first mortgage, and that’s roughly your limit. A $900,000 home with a $500,000 first mortgage leaves about $265,000 of borrowable equity at 85%. Your credit score, income, and debt-to-income ratio then decide how much of that a lender will actually extend. Our mortgages and financing hub covers how those same factors drive every loan type.
Is HELOC interest tax deductible
Sometimes, and the test is narrow: only if you spend it on the house that’s on the hook. Under current law, HELOC and home equity loan interest is deductible only when the money is used to buy, build, or substantially improve the home that secures the loan.
Use it for a kitchen gut on that same house, the interest can be deductible, per IRS Publication 936. Use it for a car, tuition, a wedding, or paying off credit cards, and it’s non-deductible personal interest. The deduction also counts against the $750,000 combined cap on home acquisition and improvement debt, and you have to itemize to claim it. Check your specific situation with a tax advisor.
The HELOC draw period, and the payment shock after it
A HELOC runs in two phases. During the draw period, usually about 10 years, you can borrow freely and many lenders let you pay interest only. Then the interest-only years end and the real bill arrives.
At the end of the draw period, the balance converts to a repayment loan, often over 10 to 20 years, with principal added to every payment. A borrower who drew heavily and paid interest only can see the payment double overnight. Plan for that reset when you open the line, not when the letter shows up.
The New York wrinkle that changes the answer
Here’s what no national guide tells you. In New York, the mortgage recording tax on a HELOC is charged on the entire credit line, not the amount you draw. Open a $200,000 HELOC on a condo and you owe roughly $4,000 in tax at closing, even if you never touch it.
A home equity loan is taxed the same way, on the loan amount, but there’s no unused portion to pay for. So in NYC, a fixed home equity loan sized to what you actually need often beats a large “just in case” HELOC on cost. Two more points:
- Co-ops are exempt. A loan against co-op shares is personal property, so there’s no mortgage recording tax at all.
- CEMA can help. On a refinance or a new equity loan, a CEMA can carry over the tax you already paid on the existing mortgage.
What we tell owners weighing it
Your home is the collateral, so the reason has to be worth the house. We’re not lenders, so this is just what we watch when a client asks.
As Georges puts it, “it’s all about the numbers,” and the number that matters here is whether the borrowed money outlasts the debt. A renovation that adds real value or a high-interest debt payoff can clear that bar. A lifestyle expense rarely does, because the downside is foreclosure, not a bad month.
If you’re tapping equity to buy your next place before this one sells, that’s a different tool, and a buyer’s agent who hands back a rebate at closing is what we do. Run the recording tax and the payment reset into the decision on our closing cost calculators before you sign anything.
Common questions
What’s the main difference between a HELOC and a home equity loan? A home equity loan is a fixed-rate lump sum with a set payment. A HELOC is a variable-rate credit line you draw from as needed, with a draw period and then a repayment period.
How much equity can I borrow against? Usually up to 80% to 85% of your home’s value, minus your first mortgage balance. Some credit unions allow 90%.
Is the interest tax deductible? Only if the money is used to buy, build, or substantially improve the home securing the loan, and only if you itemize. Interest on funds used for anything else is not deductible.
What happens when a HELOC’s draw period ends? The balance converts to a repayment loan, usually over 10 to 20 years, and principal is added to the payment. If you paid interest only during the draw period, the payment can rise sharply.
Does New York charge mortgage recording tax on a HELOC? Yes, on a condo or house, calculated on the full credit line rather than the amount drawn. Co-op share loans are exempt.
Nicole Fishman Benoliel co-founded NestApple in 2017. She's a lawyer admitted to the New York bar - her law degree is from La Escuela Libre de Derecho in Costa Rica, with further study at IE Business School in Madrid and an LLM from Fordham in New York. She does not act in a legal capacity at NestApple; every client is referred to an attorney who handles real estate deals full time.
