Unlike home equity loans, which typically require closing fees similar to a primary mortgage, there are often no closing fees with a home equity line of credit (HELOC). A home equity line of credit allows you to access a certain amount of your home equity on an as needed basis, much like a credit card. While you are free to take a lump sum of money out of your HELOC, it is not designed for that use.
Lender policies vary when it comes to fees attached to home equity lines of credit, but it is possible to obtain a HELOC without paying any closing fees. In today’s market, however, getting a HELOC at all can be challenging due to tightening lending standards and falling home prices. Borrowers do not have as much freedom negotiate with lenders as they did at the height of the housing market.
In this market, you may find some lenders are charging fees to open a home equity line of credit. Here are some of the typical fees you may encounter:
Application fee: The lender charges this fee to process the application for the loan. If your loan is approved, the lender may refund this fee at closing.
Appraisal fee: This fee goes to the appraiser that determines the value of your home. In some cases the lender will absorb the cost of this fee, but it may also be passed on to you.
Lender fees: Additional closing costs are often called lender fees. These may include document preparation, title fees and attorney fees, for example. The borrower does not typically pay these types of fees on home equity lines of credit. If you see these fees on your HELOC paperwork, you should get an explanation from your lender and see if the lender will assume or waive those costs.
Home equity lines of credit may also have additional fees during the life of the loan. These include:
Annual fees: The term of a HELOC can vary from five to 30 years. During that time, you may be charged an annual fee. That fee can range from $25 to $75 and is sometimes waived for the first year. Over time, these fees can add up. Not all lenders charge an annual fee, so it pays to shop around.
Cancellation fees: If you choose to refinance or sell your home while you have a HELOC, you will probably have to pay a cancellation fee to close the account. This fee is usually around $350 to $500. If your account has been open for 3 or more years, the lender may waive this fee but not always.
Inactivity fee: This is charged if you don’t draw funds from your account for a specified period of time. If you only use a HELOC for emergencies, this fee can get you. Have you lender waive this fee upfront so that you are not punished for using your account as you see fit.
Repayment penalty: If your lender will not waive this fee upfront, find another lender. You shouldn’t be charged to pay back the balance of your HELOC early. That’s a rip-off.
Use the Home Equity section of manybanking.com to shop for the best deals on a home equity loan in your area.
—For more ways to save, spend, invest and borrow, visit MainStreet.com.