What Are the Closing Costs of a Home Equity Loan?

Updated January 12, 2025

Fact checked by

Home equity loans can be a good option in many situations, but as with any loan, borrowers may face a dizzying array of fees. However, some costs may be avoided or reduced by shopping around, and some fees may be signs of abuse or outright fraud. In between are costs that can vary widely among lenders, local markꦬets, and even between the date of applying for and closi🧜ng the loan.

In any case, getting a 澳洲幸运5官方开奖结果体彩网:home equity loan or a 澳洲幸运5官方开奖结果体彩网:home equity line of credit (HELOC) is like getting any other loan: Understand what you’re getting ♌into, shop around, and be prepared wheꦕn faced with fees.

Key Takeaways

Home equity loans and home equity lines of credit (HELOCs), like first mortgages, 澳洲幸运5官方开奖结果体彩网:come with an array of costs at closing and over the life of the loan.
Many 澳洲幸运5官方开奖结果体彩网:closing costs are unavoidable and vary little from market to market and among lenders.
Other costs are optional, and some can be reduced by shopping around.
The U.S. government has sought to curb abuses in home equity lending, but some unscrupulous lenders may engage in abusive practices. Fortunately, there are clear red flags that may signal trouble for potential borrowers.
Emerging tech-based financial services products offer alternatives to borrowers who want to tap their 澳洲幸运5官方开奖结果体彩网:home equity, but some may have hidden risks and drawbacks and may leave consumers less protected by the laws regarding more traditional loans.

Closing-Cost Fees Can Vary

Applications for home equity loans, as with 澳洲幸运5官方开奖结果体彩网:first mortgage loans, typically allow borrowers to lock in a rate when applying. However, if there are changes in circumstances, you may face a different rate. If the lender was unable to verify income, you may not be seen as able to afford the payback and could face a higher rate or a smaller loan amount.

If an appraisal of your home value comes in at less than expected, then you may not qualify for the initial rate. You can ask for a reappraisal,♛ but you 🅺will likely have to pay for it.

Home equity loans generally have a fixed interest rate💞, while HELOCs are 💦more likely to have an adjustable rate. In such cases, know how your actual rate will be determined. Typically, the rate is tied to a common and widely published 澳洲幸运5官方开奖结果体彩网:interest rate, such as U.S. Treasury bond rates, plus a prescribed margin. Finally, lenders may use discounted rates in their promotions, such as a quarter-point off for their credit card customers or for setting up automatic payments or for “qualified borrowers.”

Be Aware of Unnecessary Closing Costs

Many home loan costs are standard and predictable: Attorney’s fees, document preparation fees, 澳洲幸运5官方开奖结果体彩网:application fees, recording fees and taxes, escrow, and insurance payments. But some may be shopped for, and others cover services that may not be necessary.

澳洲幸运5官方开奖结果体彩网:Title insurance guards against mistakes in titles and other paperwork recording a land transaction and is standard in home loans. Generally, a borrower may shop for a better deal than what the lender’s preferred provider offers.

澳洲幸运5官方开奖结果体彩网:Credit insurance—which makes payments should you become unable to make them due to illness, disability, or a similar reason—may also be an optional addition. Lenders are required to tell you if they require it. If you do not need it and don’t want it, ask for it to be removed.

Warning

For much of the last decade, 澳洲幸运5官方开奖结果体彩网:interest rates have been incredibly low. However, this era appears to be ending, as the 澳洲幸运5官方开奖结果体彩网:Federal Reserve 澳洲幸运5官方开奖结果꧅体彩网:increased interest rates multiple ဣtimes in 2022. Home equity loans still carried risks, but were relatively cheap with low payments. As interest rates rise, borrowing against your home’s equity means larger payments that may be harder to accommodate if your income decreases.

Predatory Lending Practices

A federal case brought in 1999 at the apparent height of subprime lending targeted abusive practices, primarily lending to people who could not afford it and charging high rates and adding expensive fees. Much of the case involved asset-based lending, in which lenders made loans sized on the value of the homes involved, rather than the borrower’s ability to pay. Changes in federal law, particularly the Home Ownership and Equity Protection Act—an amendment to the 澳洲幸运5官方开奖结果体彩网:Truth in Lending Act (TILA)—and subsequent legislation sought to stop the practice.

The Home Ownership and Equity Protection law attempts to rein in predatory lending practices. Some of its protections include: banning many prepayment penalties; 澳洲幸运5官方开奖结果体彩网:balloon payments due in fewer than five years on high-rate, high-fee loans; and increasing the interest rate in case of default.

A 2014 rule adopted after the 澳洲幸运5官方开奖结果体彩网:subprime crisis sought to crack down on abuses in lending. A list of banned practices from the 澳洲幸运5官方开奖结果体彩网:Consumer Financial Protection Bureau𝄹 (CFPB) suggests several red flags from 𒈔☂prospective lenders to look out for:

Balloon payments in most cases. Exceptions are for borrowers with sporadic income or in certain rural or underserved areas.
Late fees that are more than 4% of your regular payment
Fees for getting statements on how much you owe, aka a payoff statement
Fees for loan modifications, except under certain circumstances

Is There Any Negotiating Room in the Fees?

Many of the fees that a lender tries to charge aren’t set in stone. Some lenders may be willing to bend on 澳洲幸运5官方开奖结果体彩网:origination fees, which cover the commission paid to the loan officer or broker. If they require you to pay points on your loan, they may be willing to haggle on that, 🎐too. But you have to ask.

How Important Is My Credit Score?

In general, you’ll get the best terms if you have a history of steady employment and an excellent 澳洲幸运5官方开奖结果体彩网:credit score. As with any mortgage application, it’s a good idea to check your 澳洲幸运5官方开奖结果体彩网:credit reports ahead of time and make sure that they’re free of errors. For this reason, it may also be worth 澳洲幸运5官方开奖结果体彩网:considering employing a credit monitoring ser🐓vice as a means of keeping this information safe.

Do All Home Equity Loans Have Fees?

No. Some home equity loans have no fees. Some lenders charge different fees depending on the amount of the home equity loan, and 澳洲幸运5官方开奖结果体彩网:some have zero fees for any home equity loans. As with any loan product, shop around to make sure you’re🎉 getting t𒈔he best deal.

Is a Home Equity Loan Safer Than a Home Equity Line of Credit (HELOC)?

Home equity loans and home equity lines of credit (HELOCs) both use your home’s equity as 澳洲幸运5官方开奖结果体彩网:collateral and carry the same risk of losing your home to 澳洲幸运5官方开奖结果体彩网:foreclosure if you can’t pay them back. Where they differ is in their interest rates. A home equity loan has a 澳洲幸运5官方开奖结果体彩网:fixed interest rate, while a HELOC usually has a 澳洲幸运5官方开奖结果体彩网:variable interest rate.

Because of this, a home equity loan can be safer than a HELOC if your HELOC has a high balance. With a HELOC,ౠ there’s an additional risk that rates could rise to the point that you can’t afford your monthly payment. With a home equity loan, your rate and payment remain fixed.

The Bottom Line

Home equity loans can be a good way to use home equity for financially sound purposes, but as with all borrowing, it pays to be educated about fees and the real costs of taking out the loan. Scrutinize the costs, and shop around for the best rates you can find.