HELOC Termination Fees
A termination fee is a type of prepayment fee. You'll pay it if you close your HELOC before a specific date. You may pay a termination fee equal to 5% of your line of credit if you close your HELOC before 3 years or 3% if you close it before 5 years.
A HELOC early payoff or prepayment penalty is a fee that lenders charge if borrowers settle their debt before the agreed-upon timeframe. Also referred to as an 'early closure' or 'early termination fee,' this penalty is typically either a percentage of the outstanding balance or a flat fee.
When you decide to sell your home, your HELOC's life ends — but it doesn't just disappear. You must repay the funds you withdrew from it, along with any accrued interest. The payoff occurs during closing, with the amount deducted from your sale proceeds.
Assuming a borrower who has spent up to their HELOC credit limit, the monthly payment on a $50,000 HELOC at today's rates would be about $372 for an interest-only payment, or $448 for a principle-and-interest payment.
HELOC payment examples
For example, payments on a $100,000 HELOC with a 6% annual percentage rate (APR) may cost around $500 a month during a 10-year draw period when only interest payments are required. That jumps to approximately $1,110 a month when the 10-year repayment period begins.
While home loan interest rates overall have risen dramatically since 2022, HELOC rates still tend to be lower than those on credit cards and personal loans. If you qualify for the best rates, a HELOC can be a less expensive way to consolidate debt or finance a home renovation.
HELOC closing costs
Closing costs for a HELOC are often a bit lower than the costs of closing a primary mortgage, but the average closing costs for a home equity line of credit (depending on the lender and the loan product) can add up to between 2 percent and 5 percent of the total loan cost.
Think of it as a cross between a traditional HELOC and a home equity loan. Your entire loan amount is deposited into your account from the start, but once you start repaying that money, your available funds will increase, and you'll have the option to make additional draws on your line of credit.
The three-day cancellation rule says you can cancel a home equity loan or a HELOC within three business days for any reason and without penalty if you're using your main residence as collateral. That could be a house, condominium, mobile home, or houseboat.
Consider a HELOC if you are confident you can keep up with the loan payments. If you fall behind or can't repay the loan on schedule, you could lose your home.
Yes. This is the case for home equity related financial products such as fixed rate home equity loans, home equity lines of credit (HELOCs), and cash out refinances. Lenders require an appraisal for home equity loans to protect themselves from the risk of default.
If there is an outstanding balance after the home sale, the borrower will be required to pay the remaining balance on the HELOC at the time of closing, since they will no longer own the home securing the loan.
Be aware of prepayment penalties
Whether you plan to pay off your HELOC when you sell your home, are refinancing or experience a financial windfall, a prepayment penalty could be an unexpected charge. Most prepayment penalties are about 2% of your loan balance, but the amount varies by lender.
Many lenders will charge an inactivity fee if you don't use your HELOC for a certain period, typically a year or more. These fees can add up over time and eat into your available credit.
There are several ways you can access the funds from your Home Equity Line of Credit. You can access your funds through Online Banking or Mobile Banking. Treat it like any other internal transfer by selecting your Home Equity Line of Credit account, and transferring the amount that you need to your desired account.
The interest on home equity loans and HELOCs is tax deductible as long as you use the funds to "buy, build or substantially improve your home," according to the IRS. In other words, your HELOC interest may be deductible if you use the funds to remodel your kitchen or build an addition to your house.
Cons of a HELOC
Variable interest rates: Many HELOCs have variable rates, meaning payments can fluctuate and increase over time, making budgeting more difficult.
Based on those repayment terms and rates, here's how much you can expect to pay each month on a $100,000 home equity loan: 10-year fixed home equity loan at 8.50%: $1,239.86 per month. 15-year fixed home equity loan at 8.41%: $979.47 per month.
If you close a HELOC that's in good standing, the closed account can stay on your credit reports for up to 10 years. The payment history and age of the account could continue to affect your credit scores throughout this time. Closing an account could impact your credit scores in more immediate ways, however.
HELOCs typically have many of the same closing costs as a home equity loan, and come to approximately the same amount in both cases — typically between 2% and 5% of your loan amount or credit line. Unlike a home equity loan, you can use and reuse your credit line during a set time called a HELOC draw period.
HELOCs in particular can be a trap. “Many homeowners find it difficult to stay disciplined in paying down the principal on their line of credit,” Bellas says. During the initial draw period, “most HELOCs only require you to pay down the interest every month, similar to how a credit card has a minimum payment.
Yes, you can get a HELOC and not use the funds. However, getting a HELOC and not use it will cost you time and money in lender fees and account fees that we'll discuss in detail below. If you do not intend to use the HELOC right away, you'll be paying money for a loan you don't really need.