How much are closing costs on a HELOC or home equity loan?

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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 third party costs, 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.

HELOC and home equity loan fees

Cost	HELOC	Home equity loan
Closing costs	If charged, typically range from $250 to $1,000	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	No fee
Prepayment penalty	If you close your credit line within 24-36 months, you may have to pay the waived closing costs and third-party fees	Usually no fee
Third-party fees (credit check, appraisal, etc)	Some lenders may pay these fees for you	Some lenders may pay these fees for you
Application fee	Usually no fee	Usually no fee
Inactivity fee	From $5 to $50+, if there’s no activity on your HELOC for over a year	No fee

HELOC and home equity loan closing costs

Check with your lender if these closing costs apply to your loan. Many lenders waive or pay these fees for you, but some charge these fees for all home equity products. Even if they are originally waived, you may be required to pay these fees if you close your HELOC within 24 to 36 months of opening it, as a prepayment penalty.

If your lender charges closing costs on their home equity loans and HELOCs, make sure there is a trade-off in the form or lower interest rates or other benefits that make it worth it to you.

Understanding HELOC and home equity loan closing costs

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.

Other lenders charge closing costs only on larger loans or credit lines: 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 you likely be on the hook for closing costs with investment and second homes.

Because closing costs requirements vary so much by lender, ask your specific lender if closing costs apply to your loan.

3 tips to lower your closing costs

Here are three ways you can potentially reduce closing costs:

1. Shop around. Hands down, shopping around for HELOCs and comparing home equity loan lenders is the best way to save on closing costs. If possible, get a home equity product with a lender that doesn’t charge them, as many don’t.
2. Borrow within the lender’s limits. Some lenders only charge closing costs if the loan is below or above a particular amount. Find a lender that doesn’t charge closing costs on the amount of money you need to borrow.
3. Keep your HELOC open for 24 to 36 months. If you get a HELOC, prepare to keep the line open for a minimum of 24 to 36 months. Most lenders will charge you closing costs as a prepayment penalty if you close the line too early.

Which is more expensive?

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 5% and your margin is 1.25%, your variable rate will be 6.25%. 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:

• Compare variable vs. fixed rates. Study where the prime rate is heading and compare the best variable rate on a HELOC to the best fixed rate on a home equity loan. If you think rates are going down, a HELOC could be cheaper than a home equity loan and vice versa.
• Determine how much you need. Depending on the amount you want to borrow, see if you can get a better rate on a HELOC by doing a large initial draw versus a home equity loan. Many HELOCs offer discounted rates on larger initial draws. However, this strategy may only work in a climate of low interest rates.
• Don’t take out more than you need. If you only need to borrow small amounts of money at a time and pay it off like a credit card, a HELOC can be a cheaper option than getting a home equity loan which starts charging you interest immediately.

Learn more about home equity loans and HELOCs pros and cons to help you decide which is better for your borrowing needs and budget.

5 alternatives to HELOCs and home equity loans

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.

1. Cash-out refinance. Like home equity products, cash-out refinances let you access your equity but work differently. With a cash-out refi, you get a new loan to replace your old one for a higher amount. But closing costs on refis can run between 2% to 5%.
2. Personal loans. An unsecured loan for as little as $500 or as much as $100,000 can be used for any purpose. But interest rates will likely be higher than for a home equity loan or HELOC. Compare the top personal loan lenders.
3. Crypto-backed loans. If you own cryptocurrency, you may be able to borrow against these assets without having to sell them and pay capital gains tax. Learn more about crypto-backed loans’ upsides and drawbacks.
4. Credit card advances. These have much higher APRs than home equity products, but the convenience can be worth it in some cases. To avoid paying interest for 12 to 18 months, consider an introductory 0% APR credit card.
5. Peer-to-peer (P2P) loans. This is like a personal loan, but your loan is funded by another individual instead of a bank. Requirements for P2P loans may be looser than a bank loan, but there’s no guarantee of funding. Compare popular P2P lending platforms.

Bottom line

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.