Renovating Without Refinancing: HELOC vs. Cash-Out Refi for Long Island Owners Holding a Low Rate

ByPawli Paola Meyer

Roughly half of all outstanding American mortgages still carry an interest rate below 4%. According to the Federal Housing Finance Agency’s National Mortgage Database, as summarized by Calculated Risk, the share of outstanding loans under 4% stood at 49.9% in the first quarter of 2026, down from a peak of 65.1% in early 2022 (Calculated Risk). Meanwhile Freddie Mac’s weekly survey put the average 30-year fixed rate at 7.03% as of September 24, 2026, up from 6.30% a year earlier (Freddie Mac PMMS).

Owners on the wrong side of that gap face a specific problem when the kitchen needs replacing or the house needs a second floor. Borrowing against the house is the obvious way to pay for it. The less obvious question is whether to do it in a way that keeps the old mortgage intact.

This article compares the two most common routes for Long Island owners, a home equity line of credit and a cash-out refinance, with attention to the New York costs that national comparisons usually skip.

This article is for informational purposes only and is not financial, tax, or legal advice. Consult a licensed financial advisor, tax professional, and real estate attorney before borrowing against a home.

The Two Structures in Plain Terms

A cash-out refinance pays off the existing mortgage and replaces it with a new, larger loan. The difference between the new balance and the old one, minus closing costs, goes to the owner. There is one loan, one rate, and one monthly payment afterward. The old rate disappears.

A home equity line of credit (HELOC) leaves the first mortgage exactly where it is and adds a second lien behind it. The lender approves a credit limit, and the owner draws against it as needed during a draw period, paying interest only on what has been drawn. Most HELOCs carry a variable rate tied to the prime rate.

A third option, the home equity loan, also sits behind the first mortgage but delivers a lump sum at a fixed rate. It behaves like a HELOC for purposes of preserving the first mortgage and like a cash-out refinance for purposes of payment predictability.

Where Rates Stand in Late September 2026

Bankrate reported a national average HELOC rate of 7.28% as of September 23, 2026, based on its survey of large lenders (Bankrate). The Federal Reserve raised the federal funds rate by 25 basis points at its meeting ending September 16, 2026, and because HELOCs usually track the prime rate, that move feeds through to variable-rate lines (NerdWallet).

These averages are national benchmarks under specific assumptions about credit score and loan-to-value. Individual quotes vary widely by lender and borrower, and the figures above may already have moved by the time this is read.

The Math That Usually Decides It

The comparison is rarely about which product has the lower headline rate. It is about what happens to the rate on the money already borrowed.

Consider a hypothetical North Shore owner with a $400,000 balance at 3.25% and about 26 years remaining, who wants $150,000 for a renovation. The figures below are illustrative arithmetic, not quotes, and they ignore taxes, insurance, and fees.

ScenarioMonthly principal and interest
Keep existing $400,000 loan at 3.25%about $1,901
Add a $150,000 HELOC at 7.28%, interest-only during drawabout $910
Combined, HELOC route (interest-only phase)about $2,811
Add the same HELOC amortized over 20 years insteadabout $1,188 (combined about $3,089)
Cash-out refinance to $550,000 at 7.03%, 30 yearsabout $3,670

The cash-out route reprices the entire $550,000 at the current rate, including the $400,000 that was borrowed at 3.25%. That is the core reason owners holding low-rate mortgages generally lean toward a second lien. Bankrate makes the same observation: owners who bought or refinanced between 2020 and 2022 are often holding rates below 4%, well under today’s averages (Bankrate).

Two cautions complicate the table. First, the cash-out rate used above is Freddie Mac’s purchase-loan average, and cash-out refinances are often priced higher. Second, the HELOC’s interest-only phase eventually ends, and a variable rate can rise. An owner comparing the two should model the HELOC at a rate a few points higher than today’s to see whether the payment would still be manageable.

When a Cash-Out Refinance Can Still Make Sense

A cash-out refinance is not automatically the wrong answer. It tends to look better when:

  • The existing mortgage rate is already close to or above current market rates, so there is little low-rate debt to protect.
  • The existing balance is small relative to the amount needed, so repricing it costs less.
  • The owner strongly prefers one fixed payment and wants no exposure to variable rates.
  • The owner wants to restructure the loan term at the same time, for example moving to a shorter amortization.

For owners with a large balance at a pandemic-era rate, those conditions are uncommon.

The New York Cost National Articles Leave Out: Mortgage Recording Tax

New York imposes a tax on the privilege of recording a mortgage, and it applies to refinances as well as purchases (NY Department of Taxation and Finance). In Suffolk and Nassau counties, the total rate is $1.05 per $100 of mortgage debt: a basic tax of 50 cents, a special additional tax of 25 cents, and an additional tax of 30 cents that applies in the Metropolitan Commuter Transportation District. For one- or two-family homes, the first $10,000 of principal is excluded when computing the additional tax (NY DTF TSB-M-05(4)R).

Applied to the hypothetical above, a conventional cash-out refinance recording a new $550,000 mortgage would carry roughly $5,745 in recording tax. A $150,000 HELOC secured by a recorded mortgage would carry roughly $1,545. How the tax is split between borrower and lender, and whether any exemptions apply, should be confirmed with the closing attorney.

How a CEMA Changes the Refinance Math

New York borrowers have a tool that can shrink the recording tax on a refinance: the Consolidation, Extension and Modification Agreement, or CEMA. Instead of paying off the old mortgage and recording a brand-new one, the existing mortgage is assigned to the new lender and consolidated with a new “gap” mortgage for the additional money.

The Manhattan firm Adam Leitman Bailey, P.C. explains the effect in a case study on the subject: “Instead of paying mortgage tax on the entire new loan amount, a CEMA allows a borrower to only pay mortgage tax on the difference between the new loan amount and the unpaid principal balance of their current loan” (Adam Leitman Bailey, P.C.). In the hypothetical, that would reduce the taxable amount from $550,000 to the $150,000 of new money.

The same article lists the catches. The current lender is under no obligation to assign the loan, and an upfront assignment fee can run $500 to $2,000, sometimes non-refundable. There are legal fees for the assigning lender’s attorney and additional recording fees, and the firm notes that recording fees in Nassau and Suffolk rose significantly in 2017 in a way that can affect cost-effectiveness. A CEMA also takes time, since the original note and recorded mortgage have to be located and transferred.

A CEMA lowers a cash-out refinance’s closing costs. It does nothing about the rate problem, because the consolidated loan still carries the new rate on the full balance.

Tax Treatment: The Renovation Detail That Matters

For owners who itemize, federal rules on deducting home equity interest turn on how the money is used. IRS Publication 936 states that, no matter when the debt was incurred, interest on a loan secured by the home is not deductible to the extent the proceeds were not used to buy, build, or substantially improve the home. It also caps deductible home mortgage interest at the first $750,000 of qualifying debt ($375,000 if married filing separately), with higher limits for debt incurred before December 16, 2017 (IRS Publication 936).

A renovation that substantially improves the house securing the loan is therefore the use most likely to keep HELOC or cash-out interest deductible. Paying off a car or credit cards with the same draw is not. Given the $750,000 cap, owners with large first mortgages should also check whether adding renovation debt pushes them past the limit. A tax professional should review the specifics, including recordkeeping that ties draws to improvements.

Practical Sequencing for a North Shore Renovation

The borrowing structure should follow the project, not lead it. A few principles apply to most Long Island renovations:

Price the project before sizing the credit line. Contractor bids, architectural fees, permit costs, and a contingency reserve set the number. Maison Pawli’s earlier post on the gut rehab math for North Shore fixer-uppers addresses which projects tend to recover their cost.

Match the draw schedule to the construction schedule. A HELOC’s flexibility is most valuable when work happens in phases, since interest accrues only on money drawn. Permit timing on Long Island can stretch a project considerably, which is covered in how to sequence a North Shore fixer-upper renovation to avoid the permit trap.

Stress-test the variable rate. Before signing, run the payment at a rate two or three points higher than the quoted rate. If that payment would strain the household budget, a fixed-rate home equity loan or a smaller project may be the better choice.

Ask about fixed-rate conversion. Some lenders allow a portion of a HELOC balance to be converted to a fixed rate, which can limit exposure once a large draw is made.

Confirm the appraisal assumptions. Most lenders cap combined borrowing at a percentage of the home’s appraised value. If the appraisal comes in low, the available line shrinks. An improvement that raises value may not be reflected until after the work is done.

Frequently Asked Questions

Does a HELOC affect the existing mortgage rate?
No. A HELOC is a separate, subordinate lien, so the first mortgage and its rate remain unchanged.

Is mortgage recording tax charged on a HELOC in New York?
New York taxes the recording of mortgages, and a HELOC is generally secured by a recorded mortgage, so the tax typically applies to the secured amount. The exact computation should be confirmed with the closing attorney or title company.

Can a CEMA be used with a HELOC?
A CEMA is a refinance tool for consolidating an existing mortgage into a new one. A standalone HELOC does not pay off the first mortgage, so the CEMA question generally arises only with a refinance.

Is HELOC interest deductible when used for a renovation?
Under IRS Publication 936, interest can be deductible if the proceeds are used to buy, build, or substantially improve the home securing the loan and the total qualifying debt stays within the limits. Deductibility also requires itemizing.

This article is for informational purposes only — consult a licensed financial advisor, tax professional, or attorney about your specific situation. Rates cited reflect published averages as of late September 2026 and change frequently; the worked example is hypothetical.

Real estate markets change. For current listings and market data, contact Maison Pawli at maisonpawli.com/about/.

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