A Home Equity Line of Credit (HELOC) allows homeowners to borrow against the equity in their property, typically through a revolving credit line with a draw period of around 10 years. Alongside interest and other upfront fees, some lenders charge an annual fee simply to keep the line open. This HELOC annual fee covers the lender’s cost of servicing your account, including account management, statement delivery, credit reporting, and regulatory compliance.
This fee usually ranges from $50 to $100 annually and is billed on the account anniversary date. If unpaid, it can accrue interest just like your borrowed balance. It’s important not to confuse this recurring fee with one-time costs such as appraisal or origination fees.
Not all lenders charge an annual fee. It’s beneficial to compare different HELOC offers, including from credit unions, many of which waive this fee to attract borrowers.
When evaluating HELOC costs, consider these common fees:
- Annual Fee: Yearly charge for keeping the credit line open, typically $0 to $100.
- Origination Fee: Upfront cost for processing the loan, usually 0.5% to 1% of your credit limit.
- Appraisal Fee: Payment for a professional home valuation, often $300–$600.
- Closing Costs: Legal and administrative fees, approximately 2% to 5% of the credit limit.
- Inactivity Fee: Charged if you do not use your HELOC within a certain timeframe, around $50 to $100.
- Early Closure Fee: Penalty for closing the account early, typically $250 to $500.
To minimize or avoid the HELOC annual fee, consider these strategies:
- Shop Around: Compare lenders carefully since many do not charge an annual fee.
- Request a Waiver: Strong credit and existing banking relationships may help you get the fee waived.
- Watch for Promotions: Some lenders waive fees for the first year.
- Leverage Your Relationship: Banks may waive fees for customers with multiple accounts.
- Read Disclosures: The Consumer Financial Protection Bureau (CFPB) requires lenders to clearly disclose all fees, helping you avoid surprises.
FAQ Highlights:
- The annual fee is different from an inactivity fee, which is charged only when you don’t use your HELOC.
- Generally, HELOC annual fees are not tax-deductible; consult IRS Publication 936 or a tax advisor for details.
- Closing your HELOC to avoid fees can trigger early closure penalties; review your loan terms before deciding.
For more on managing your HELOC and understanding related terms, explore our glossary entries on Home Equity Line of Credit (HELOC), Draw Period, and Line of Credit.
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