Saving money and avoiding extra expenses are important in this economy, but if you’re not careful, a home equity line of credit (HELOC) may give you an unpleasant surprise with a hidden fee.
- What it costs you: 1% (usually $250-$500) of the outstanding balance on your HELOC, depending upon your loan agreement.
- Why you’re being charged: Your lender may offer to pay the closing costs, which includes the appraisal and any document-handling fees. While this offer may sound appealing, don’t accept too quickly. Financial institutions expect that you’ll keep a HELOC open for 3-5 years at minimum and that they will profit from interest charges. So if you close your line of credit too soon, the bank may ding you with this fee to recover its expenditures.
- How to avoid it: Keep your HELCO open until you are past the fee period, even if you have zeroed out the balance.