What Does It Cost to Get a HELOC?

Maybe the shingles are falling off your roof, or your house is bursting at the seams and you want to add more space. If you have substantial equity in your home and need money for big-ticket projects, a home equity line of credit can help with finances. However, as with other home loan products, HELOCs can have a complex array of costs associated with them.

How HELOCs Can Help

HELOCs are a revolving line of credit, with your home serving as collateral. In addition to home improvements, borrowers sometimes use the loan to pay for medical or education expenses. Lenders often set a credit limit that reflects your remaining mortgage amount and equity in the house. The most common length of time for borrowing with a HELOC, called a "draw period," is 10 years. After this time, you will be required to begin paying back the loan or may be allowed to renew it.

Take an Interest in the Interest

The largest cost associated with a HELOC is the interest, which is generally a variable rate. The lender usually ties the interest to the prime rate, adding an additional percentage called a "margin." For example, if the current prime rate is 3.25 percent, and the lender charges 1 percent as the margin, the interest rate will be 4.25 percent. But if the prime rate moves up to 4 percent, the interest rate on the HELOC jumps to 5 percent. Many HELOCs have a cap on the amount that the interest rate can change in a year.

Keep a Close Eye on Closing Costs

Just like a first mortgage, HELOCs sometimes have fees and closing costs. It may pay to shop around to find a loan without closing costs, but be sure to factor in other costs to make sure you are getting the best deal. Some lenders may offer a no closing cost HELOC if the borrower keeps the loan open for a certain number of years. Closing costs can vary widely depending on the lender. Nationwide Bank charges up to $750 for closing costs in most states. Landmark Credit Union charges $115 to $660 in closing costs, which are waived if the house is owner-occupied with a loan limit of $10,000 or more.

Get a Feel for the Fees

Various fees can also add to the cost of a HELOC. Fees associated with opening a HELOC can include a property appraisal and document preparation. Some may have annual maintenance fees, while others may charge for each transaction or for inactivity. Wells Fargo, for instance, charges a $75 annual fee. There may also be prepayment penalties for closing the account or paying off the loan earlier than stipulated in the loan documents. For example, if a Nationwide HELOC is paid off in the the first 24 months, the bank charges $300.


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