If you’ve ever inquired about a home equity line of credit (HELOC) at your financial institution, you’ve likely been told about all the perks they offer for homeowners. While those are very much a reality, there are fees involved with this type of loan that you’ll want to be aware of in advance. While the HELOC will allow you to borrow against the value of your home by tapping into the equity you’ve built up over time, you’ll need to weigh out the pros and cons to determine if the fees associated with the HELOC are worth the benefits based on your personal circumstances. The first step to exploring a HELOC is learning more about which fees you’ll encounter as part of the process and how much you can expect to pay.
Closing Cost Fees
Similar to what you’d encounter with a primary mortgage, you’ll be expected to pay closing costs for your HELOC which can range from $200 – $350+ on average.
A professional appraiser will need to determine the value of the property. This service will cost around $150 – $250 and will allow the lender to have a more accurate picture of the value of your home before they allow you to borrow from your equity.
Setting up a HELOC takes time, so this fee will cover any time spent doing paperwork and other administrative duties required to complete and file the application. Typically, your financial institution will charge $100 – $200 for this fee.
Credit Report Fee
Having to pull credit report information will cost you approximately $20 – $100 for the financial institution to access the records and review them.
As part of the process, you’ll need to have a lawyer register the loan documents to show that it’s now being secured by your home as collateral. You may have the option to use an in-house lawyer at your financial institution which can save you some cash, but you’re also able to hire your own externally. Either way, you can expect to spend between $500 – $1,500 depending on how much work and time are required.
Most lenders will charge a one-time loan origination fee to process new loans. The cost for this will depend on the value of your HELOC, but typically you can expect to pay between 0.5% – 1% of your total loan amount.
The main role of a notary is the witnessing of signatures, preparing copies of paperwork and the authentication of documents. The cost is minimal and is on a per-signature or document basis, meaning you’ll likely be paying anywhere from $20 – $50 to have papers notarized. Some financial institutions will offer this service free of charge so if you have the option to utilize a free in-house bank notary system, this fee will be waived.
A title search will need to be completed to ensure there are no liens on the property. This process can cost anywhere from $250 – $500 on average.
Once you’re approved for your HELOC, your lender may offer you optional insurance. You won’t need it to be approved, but you may want to consider it based on your personal situation. Optional loan insurance includes life, serious illness and disability insurance products that can help you make payments or help you pay off the remaining balance of a HELOC (typically up to a maximum amount) if you lose your job, become critically ill, injured/disabled or die.
When you get loan insurance, you either pay a recurring premium when your loan payment is due, or a one-time premium. If you’re charged a single premium, you’ll typically be charged when your loan is approved. Premiums are calculated by your lender so you’ll want to inquire about these fees with them directly as they’ll vary based on your personal situation.
A tax service fee is assessed and collected by a lender to ensure that borrowers pay their taxes on time. You’ll likely encounter a fee associated with this which costs $100 – $125 on average.
How To Lower Closing Costs
The average closing costs on a HELOC will typically equal 2% – 5% of the total loan amount or line of credit, accounting for all lender fees and third-party services. There is a chance that these fees may be covered by the lender under a “no-fee” HELOC product, but you’ll want to keep in mind that lenders may have already built these fees into the interest cost of your loan. Be sure to compare APRs when you’re looking for a HELOC, and not just interest rates.
One of the benefits of home equity products is that many lenders may offer to reduce the closing costs on these loans with lender credits or may even elect to waive them altogether in some instances. If you’re concerned about the amount of closing costs you’ll need to pay for a HELOC, speak directly with a lender to learn more about their specific fees and if any of them can be waived or avoided.
A HELOC can be a great financing option for Canadians who own a home and are looking for some extra cash to consolidate debt or cover a large expense. As with any type of financial product, there are fees associated with opening and maintaining a HELOC, so it’s important that you understand what is required and what you can expect to pay before you sign any documents. If you’re interested in learning more about your loan options or want to explore HELOCs in more detail, you can reach out to our team of qualified professionals any time.