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Contrary to popular belief, many lenders don’t charge closing costs on home equity loans or home equity lines of credit (HELOCs) on primary residences — or only charge them under specific conditions. But you may still be on the hook for annual fees or early prepayment penalties. Here’s a closer look at closing costs and other fees you’re likely to run into on home equity loans and HELOCs.
While many online sources state that you’re likely to pay between 2% and 5% in fees on home equity loans and HELOCs, it’s not entirely accurate. The fact is, only some lenders charge closing costs on home equity products — and you can probably avoid paying them if you shop around.
For example, lenders like U.S. Bank, Citizens Bank, Flagstar Bank, Bethpage Credit Union and Bank of America don’t charge closing costs on their home equity loans or HELOCs. But you still need to look at their interest rates and compare lenders to make sure you’re getting a good deal.
But other lenders do charge closing costs: Regions Bank charges them on loans over $250,000, while Navy Federal charges them on loans under $250,000. TD Bank only charges closing costs if a HELOC is over $500,000 and AppleTree Credit Union charges $296 for loans under $99,999. And it appears most lenders charge closing costs on home equity products for investment and second homes.
Because closing costs requirements vary so much by lender, ask your specific lender if closing costs apply to your loan. Watch out for these other fees, too:
HELOC and home equity loan fees
| Cost | HELOC | Home equity loan |
|---|---|---|
| Closing costs | These are often not charged, but some lenders will charge them depending on the loan amount. Closing costs, if charged, typically range from $250 to $1,000. | These are often not charged, but some lenders will charge them depending on the loan amount. Closing costs, if charged, typically range from $0 to $1,000. |
| Annual fee | From $0 to $75 per year, depending on the lender and/or the state. | None. |
| Prepayment penalty | Typically yes, if you close the line within 24 to 36 months. | Typically no fee. |
| Third-party fees (credit check, appraisal, etc) | Usually no charge, but some lenders may charge these fees. | Usually no charge, but some lenders may charge these fees. |
| Application fee | Usually no fee. | Usually no fee. |
Check with your lender if these closing costs apply to your loan. Many lenders don’t charge them, but some do — and you may be required to pay these fees if you close your HELOC within 24 to 36 months of opening it.
If your lender charges closing costs on their home equity loans and HELOCs, make sure the trade-off in the form or lower interest rates or other benefits is worth it to you.
Getting a no-closing-cost HELOC is a matter of shopping around. If a given lender is charging closing costs or origination fees, carefully evaluate whether it’s worth paying them in exchange for a lower interest rate or other benefits. If not, keep shopping around to find a lender that doesn’t charge closing costs.
While many lenders don’t charge closing costs or origination fees, here are a few types of fees you can expect to pay:
Another thing to be aware of is that the lender may require you to draw a specific amount when you open a HELOC. This amount may be as little as $100 or as much as $5,000 or more. Minimum withdrawal requirements and potentially increasing variable rates can affect the overall cost of your HELOC in the form of higher interest payments.
The costs of establishing a HELOC or home equity loan are similar, but interest rates can vary widely and affect the overall cost or your loan more than any other factor. For instance, many HELOCs offer attractive introductory rates for six months to a year that are at least 1% lower than the fixed rates on home equity loans.
But after the introductory period is up, the rate on your HELOC can jump up to the prime rate plus a margin — which may make your HELOC rate less attractive. For example, if the prime rate is 4% and your margin is 1.25%, your variable rate will be 5.25%. This may be higher than the rate on a fixed-rate home equity loan if you locked in a low rate when rates were favorable.
To make sure you’re getting the lowest-cost loan possible:
Learn more about home equity loans and HELOCs pros and cons to help you decide which is better for your borrowing needs and budget.
Comparing HELOC and home equity loan lenders can save you a bundle. Compare these lenders and lender marketplaces by the type of home equity product you’re seeking, their state availability and minimum credit score.
Here are three ways you can potentially reduce closing costs:
Home equity loans and HELOCs and cash-out refinance aren’t the only way to access cash. If you don’t have equity or don’t want to use your home as collateral, consider these other financing options.
Getting a home equity loan or HELOC can be a smart financial move, but because you’re taking on more debt with these products, make sure the pros of borrowing outweigh the cons.
The good news is, you don’t have to pay closing costs in many cases if you shop around. To find the right fit for your needs, compare HELOC lenders.
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