Understanding the Mortgage Recording Tax (MRT)
The Mortgage Recording Tax (MRT) is a state and local tax imposed when a mortgage is recorded against real property in New York. This tax applies to various types of loans secured by real estate, including home equity loans and home equity lines of credit (HELOCs). Understanding how MRT applies to these financial products can help homeowners better anticipate costs when leveraging the equity in their property.
Does MRT Apply to Home Equity Loans?
Yes, MRT applies to home equity loans because they involve a recorded mortgage securing the loan against real property. A home equity loan is a lump-sum loan that allows homeowners to borrow against the equity in their home. Since the mortgage securing the loan must be recorded with the county clerk, the transaction is subject to MRT.
Does MRT Apply to HELOCs?
Similarly, a home equity line of credit (HELOC) is also subject to MRT if it is secured by real property. A HELOC functions as a revolving line of credit that homeowners can draw from as needed. Even though funds are accessed over time rather than as a lump sum, the fact that a mortgage is recorded means MRT applies.
How is MRT Calculated on Home Equity Loans and HELOCs?
MRT is typically calculated as a percentage of the loan amount. The rates vary based on loan size and property type:
- For residential mortgages under $500,000: The MRT rate is 1.8% in New York City.
- For residential mortgages of $500,000 or more: The rate increases to 1.925% for one-to-three family homes and individual condos.
- For commercial mortgages or properties with more than three units: The rate is 2.8% if the loan exceeds $500,000.
Borrowers usually pay MRT at closing, and in many cases, lenders may roll this cost into the loan amount.
Are There Any Exemptions?
While MRT is generally applicable, there are potential ways to reduce or avoid it:
- CEMA (Consolidation, Extension, and Modification Agreement): If you are refinancing an existing mortgage or converting a HELOC into a new mortgage, a CEMA can help minimize MRT by taxing only the new money borrowed rather than the entire loan amount.
- Lender-Specific Programs: Some lenders structure HELOCs in a way that avoids formal mortgage recording, though this is less common.
- Co-op Properties: Since co-ops are considered personal property, MRT does not apply when taking out a home equity loan or line of credit on a co-op unit.