Can You Pay Off a HELOC Early? Fees and Process

A Home Equity Line of Credit (HELOC) functions as a revolving credit line, allowing homeowners to borrow against their home’s equity. Unlike a traditional loan that provides a lump sum, a HELOC offers flexibility to draw funds as needed, similar to a credit card. Borrowers typically have a draw period, often lasting 5 to 10 years, followed by a repayment period. Homeowners often wonder if this financial tool can be paid off early.

Understanding Early Payoff and Your Agreement

Paying off a HELOC early is generally permissible and can lead to significant interest savings. However, the specific terms of each HELOC agreement dictate the implications of early repayment. Review your loan documents for clauses detailing prepayment penalties or early closure fees.

Understanding the difference between paying off the outstanding balance and formally closing the HELOC account is important. Paying off the balance means you owe nothing, but the line of credit remains open for future draws. Closing the account terminates the credit line and removes the associated lien on your property.

Potential Fees and Other Considerations

When considering an early payoff, several potential costs warrant attention. Some lenders may impose an early payoff or prepayment penalty if the HELOC is closed within a certain timeframe, often within the first one to five years. These fees compensate the lender for anticipated interest income they will not earn.

Prepayment penalties can be structured as a percentage of the original credit line or outstanding balance, typically ranging from 2% to 5%. Some lenders might charge a flat fee, often a few hundred dollars. Additionally, some agreements may require borrowers to repay any closing costs initially waived if the account is closed prematurely.

Beyond lender-imposed fees, administrative costs for releasing the lien on your property are a consideration. County or state offices charge a fee for recording the lien release, which lenders often pass on to the borrower. These lien release fees typically range from $15 to $50.

Closing a HELOC can also impact your credit score, potentially affecting your credit mix or the average age of your credit accounts. This effect is often temporary. If future financial needs arise, you would need to apply for new financing. Weighing interest savings against potential future access to funds is a personal financial decision.

The Process of Paying Off and Closing Your HELOC

To initiate the payoff process, contact your HELOC lender to request a final payoff quote. This quote provides the exact amount needed to satisfy the loan, including any accrued interest up to a specific “good-through” date. You can typically obtain this quote through a phone service or online portal.

Once you have the payoff quote, make the final payment ensuring it reaches the lender by the specified good-through date. Accepted payment methods often include wire transfers for same-day processing or certified checks. Confirming the payment’s receipt and that the balance is zero is important.

After the balance is paid, formally request the closure of the HELOC account. Many lenders require a written authorization form to close the account and release the lien on your property. Without this formal closure request, the account may remain open, potentially incurring additional fees or keeping the lien active.

Following the closure, verify that the lien on your property has been released. The lender typically sends the lien release document to the county recorder’s office within 30 days of payoff. The county’s processing and return of the recorded release can take 90 days or more. Finally, monitor your credit report to ensure the HELOC is reported as “paid in full” and “closed.”