Key takeaways
- The closing costs and fees for a home equity loan and HELOC differ based on the lender and typically fall within the range of 1-5% of the overall loan amount.
- HELOCs have fewer closing costs than HELoans, but often carry ongoing fees such as account maintenance, inactivity and lock-in-rate charges.
- Closing costs are not tax-deductible, but the interest paid on the loan may be.
- Methods to decrease closing costs involve arranging automatic payments and shopping around among various lenders for the most favorable offer.
Securing a home equity loan is much like getting a mortgage. So you might ask: Do home equity loans come with closing costs? What about HELOCs?
The answer isn’t all that simple. While some estimates peg the average home equity loan closing costs comparable to primary mortgages — a range of 2–5 percent of the total loan — they’re often much less, as little as 1 percent. Some are even negotiable.
Still, you’ll need to factor in these fees when determining the total cost of the loan or line of credit. Let’s dive deeper into both home equity loan and HELOC closing costs — and how to reduce them.
What are home equity loan closing costs and fees?
Home equity loan closing costs and fees are upfront expenses: You must pay them before you receive any of the funds. The fees associated with home equity loans can vary significantly. Some costs are flat fees, usually those from outside authorities for services like a home appraisal, title search or notarization. Fees that are charged by the lender often tend to be percentages of your loan principal.
To provide you with an understanding of potential costs associated with a home equity loan, closing costs — helping you figure out the overall cost of your home equity loan — here’s a breakdown of the most common charges.
| Closing Cost | Potential Fee |
|---|---|
| Origination fee | 0.5-1% of loan amount |
| Appraisal fee | $300–$450 |
| Credit report fee | $10–$100 |
| Legal fees | Flat hourly rate or % of loan amount |
| Filing/notary fees | $20–$100 |
| Title insurance costs | .5-1% of loan amount |
| Title search fee | $100–$450 |
Origination fees
Potential cost: 0.5-1% of the loan amount
Some lenders charge an origination fee up front — an expense just to get the ball rolling on your application . Amounts vary by lender but may be either a flat fee or a percentage of the amount you borrow. If the latter, it can be as much as 1 percent of your home equity loan. In other cases, this can be a fairly nominal cost: TD Bank , for example, charges an origination fee of $99 for home equity loans.
Appraisal fees
Typical cost: Around $350
Lenders typically require that a home appraiser determine the current value of your property, which in turn impacts the worth of your equity stake, and the amount you have available to borrow. Generally, home equity loan appraisals average $358, according to HomeAdvisor. If you have a much larger home and/or you live in a high-priced area, the cost can be more expensive.
This is one area in which costs may actually be decreasing. For home equity financing, lenders are increasingly using an automatic valuation model (AVM) instead of a traditional in-person appraisal. If they do, your appraisal fee would be drastically less, or even zero.
Credit report fee
Potential cost: $10–$100
As a part of any credit-based lending process, lenders check your credit score, doing a hard pull of your credit report. This typically incurs a fee between $10 and $100 per report.
Legal fees
Potential cost: Flat hourly rate (e.g., $100–$300) or percentage of overall loan (e.g., 0.5–1%)
This is one of those home equity loan fees that varies. Some states mandate that an attorney review your loan documents; others make it optional. Even when it’s not a legal requirement, it’s a good idea to have a pro read the contract and make sure that you fully understand the loan terms and that they dovetail with everything the lender originally told you. Many real estate lawyers charge an hourly rate ($100–$300) to review loan papers, though some may have a flat fee. Figure on the legal fees comprising 0.5 to 1 percent of your loan.
Filing/notary fees
Potential cost: $20–$100
Since it’s a lien on your property, a home equity loan has to be filed with your local county clerk’s office. And the agreement has to be properly witnessed and notarized. Again, this varies greatly among states: The cost of home equity loan processing with your local authorities generally runs from $20 to $100.
Title insurance costs
Potential cost: .5-1% of purchase price
Not all lenders will require that you, the homeowner, get title insurance for a home equity loan — especially if you already secured this coverage when you got your original mortgage. If they do, though, the title insurance costs vary depending on the type of coverage your lender mandates. Unless you’re dealing with the folks who financed your first mortgage, you probably will have to take out a lender’s title insurance policy (which protects the financial institution against any claims or liens on the home). These policies can range from $500 to $3,500 for home equity loans.
Title search fee
Potential cost: $100–$450
Since the home is used as collateral for a home equity loan, lenders will arrange a title search to see if there are any liens or claims to the property from another entity. This fee is typically about $100 to $450, depending on your area.
What are HELOC closing costs and fees?
While a home equity loan functions a lot like a mortgage — you get a lump sum you repay over time — a HELOC is a little different. It’s a revolving line of credit, similar to a credit card’s that you can access for a fixed number of years (and then repay over another set period).
HELOCs typically come with fewer closing costs compared to home equity loans; for instance, many don't necessitate purchasing title insurance. However, expect comparable application fees, including those for credit reports and property valuations. Moreover, HELOCS involve several recurring expenses, so be ready to cover charges related to actions like terminating the loan agreement prematurely or locking in an interest rate.
| HELOC Fees | Potential Cost |
|---|---|
| Application fee | $15-75 |
| Annual fee | $5–$250 |
| Early cancellation fee | Percentage of the credit line or fixed fee (up to $500) |
| Transaction fee | $5 |
| Inactivity fee | $5–$50 |
| Prepayment penalty | Percentage of the credit line or a flat fee (up to $500) |
| Rate-lock fee | $50 |
Application/origination fee
Potential cost: $15–$75
This fee, also referred to as a processing cost, is a single charges applied when you submit an application for a home equity line of credit (HELOC). Different lenders have different policies; some levy the fee per application, whereas others impose it per applicant—meaning that if multiple people are applying together, each might be required to cover this modest fixed amount. However, certain lenders do enforce more substantial origination fees instead. Figure For instance, they charge an origination fee that can be as high as 4.99 percent of the initial draw amount.
Annual fee
Potential cost: $5–$250
This is an annual fee applicable to active accounts, which gets charged every year regardless of whether you utilize the line of credit within that period.
Early cancellation fee
Potential cost: A portion of your loan amount (3-5% of the total) or a fixed fee ($200-500).
If you pay your HELOC off and close the account while you’re still in the initial draw period — the lender may charge an early cancellation fee. It can be either a set amount or a percentage of outstanding balance.
There is an exemption in this case, though it has a short duration. A federal regulation exists known as the right of rescission , that allows you to cancel a HELOC (or a home equity loan) within three business days of opening it. You need to notify your lender of the cancellation in writing. When you do, they have to return any interest and fees you’ve paid.
Transaction fee
Potential cost: Nominal (e.g., $5)
This comes with an additional charge each time you use your HELOC. The transaction fee can either be a flat rate similar to an ATM fee or a percentage based on the amount withdrawn. Should your lender apply these fees (as not all lenders do), it would be wise to limit how often you make withdrawals.
Inactivity fee
Potential cost: $5–$50
Unlike what was mentioned earlier, HELOCs may impose fees on you even if you do not use them at all during a specific timeframe—essentially charging you for non-use. Make sure to inquire with your lender about such potential inactivity fees, particularly if you anticipate infrequent withdrawals from your line of credit.
Prepayment penalty
Potential cost: 2-5% of outstanding balance or flat fee
Also called an “early termination” or “early closure” fee, the prepayment penalty is an amount imposed if you pay off your full HELOC balance ahead of schedule during the repayment phase. Why? Because eliminating your balance and closing the credit line prevents the lender from earning any more interest (and profits) on it.
Rate lock fee
Potential cost: $50
Although they’re variable rate, many HELOCs allow you to freeze the interest rate on all or a portion of your balance. And of course, they often charge you for that privilege – typically, a flat sum of $50. But it could be worth it, if you think having a fixed interest rate will net you savings in the long run.
Money tip: It’s not exactly a fee, but some HELOCs have a “minimum draw at closing” requirement. That means you have to start using the HELOC right away, withdrawing a certain amount from the line of credit as soon as the funds become available. Which in turn means you have to start paying interest on those funds each month.
Ways to lower your home equity loan closing expenses
A home equity loan or HELOC closing costs might be costly; however, several measures can help reduce or even remove these fees.
- Improve your financial profile. You can secure a more favorable interest rate for your HELOC or home equity loan by doing this. better credit score And another way to achieve this is by decreasing your debt-to-income (DTI) ratio By settling other debts, you'll be better positioned to negotiate—or request—a reduction in closing costs. The lender may eliminate some charges or, similar to having a reduced debt-to-income ratio, include these fees in your loan amount to reduce your initial outlay.
- Start with your present financial institution. Lenders frequently waive or reduce fees for their current customers, particularly for those who have been with them for an extended period or maintain substantial accounts. However, avoid letting minor concessions influence your decision too much: If your bank's offerings are not competitive or do not meet your requirements, consider looking into other options, even if they provide some discounts.
- Shop around Knowledge is power, and despite liking your present lender, it’s beneficial to compare closing costs across different lenders to ensure you get the most cost-effective option. home equity loan or HELOC option. It can also give you some bargaining power (see below). Start your search with the best low- and no-fee home equity lenders , as you’ll find an appealing absence of some of the common costs.
- Negotiate with lenders. Don’t be timid about negotiating on home equity loan/HELOC costs and fees. These added charges are often more flexible than the lender might let on. If a lender is unwilling to budge on its closing fees, consider working with a different lender.
- Explore no-closing-cost HELOCs or home equity loans . Some lenders offer these options, but don’t expect your home equity loan or HELOC to come free. Instead, the lender generally compensates for the lack of closing costs by charging a slightly higher interest rate This implies that the total expense of the home equity loan or HELOC could ultimately be comparable in conclusion.
The main point regarding closing costs for a home equity loan
Yes, home equity loans come with closing costs. Similarly, HELOCs also incur these fees but generally at a lower rate. Instead, they typically charge more for maintaining and utilizing the line of credit.
To determine if using your home’s equity through borrowing is suitable for you, make certain to analyze the figures carefully. home equity calculator If you're prepared to proceed with a lender, make certain you comprehend all the related fees, including those labeled as "no closing cost" loans or lines of credit.
FAQ
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Can the closing costs for a home equity loan be deducted from taxes?
Unfortunately, no. While you might be able to deduct some of the cost of a home equity loan or HELOC — namely, the interest you pay on it — the IRS generally doesn’t offer tax perks for closing costs. But as you move forward, the interest you pay on your home equity loan can be tax-deductible, depending on what you use the financing for.
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Do home equity loans have closing costs if you’re using the same lender as your mortgage?
Perhaps. You might be able to score some sort of discount if you do other business with the company, especially if you’re a great customer who pays on time and has a sizable balance in your bank account. However, there is no rule that keeping your primary mortgage and your second mortgage under the same roof will translate to any savings. Regardless, make sure you cast a wide net and compare multiple lenders to make sure you get the best deal.
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What if I can’t afford closing costs?
The most effective approach would be to concentrate on finding lenders whose offerings specify "no cash required at closing." However, remember this might come with potential drawbacks: The lender could offset their lack of upfront profit by charging you increased interest rates later on. Alternatively, they might incorporate your closing expenses directly into the loan balance — leading to larger monthly payments over time.
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