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because of the paperwork and possible stress involved, here’s some good news:

The HELOC closing process is typically less complicated than what you’ll go through when you’re getting a primary home mortgage. With a HELOC, the transaction is between just you — as the homeowner and borrower — and your lender. Which can give you more control over the pace and potential problems.

Still, it’s a good idea to have an understanding of how the process works. In this guide, we’ll look at the documents you may need, the costs you can expect, and the steps you can take to prepare for a HELOC closing.

Preparing for HELOC Closing

For most borrowers, getting a HELOC takes about two to six weeks from application to closing. Here’s a quick summary of how the process generally works:

Completing Your HELOC Application

After you’ve researched how a HELOC works, as well as the terms various lenders are offering, and you’ve chosen who you want to work with, you can complete your application (online or in person). As part of this step, you’ll be asked to provide information about your income, credit, debt payments, and home equity to help determine your eligibility for a HELOC.

Going Through the Underwriting Process

Once you submit your application and any documentation the lender requires, an underwriter — a financial expert who assesses risk for lenders, insurers, or investment companies — will examine your financials. You will likely be required to have a home appraisal performed to assess your home’s current market value, and the underwriter may contact you with follow-up questions or a request for additional documentation. A HELOC monthly payment calculator can show you what your monthly payments would look like based on how much you borrow and your interest rate and repayment term.

Preparing the Lending Agreement

Upon approval, the lender will finalize the terms of your HELOC and prepare your lending agreement, which should include a detailed explanation of your HELOC, including how long you can withdraw money from the account (during the “draw period”), how long you’ll have to pay back the balance you owe (during the “repayment period”), and your interest rate.

Proceeding to Closing and Funding

At your closing, you (and any co-applicants) will be asked to sign your loan documents and pay your closing costs. If your HELOC is secured by your primary residence, you shouldn’t expect to get your money right away. There is a mandatory three-day “right of rescission” waiting period before you can access the funds in your account. (This right, which is also called the three-day cancellation rule, is required by a federal Truth in Lending Act, and gives borrowers an opportunity to change their mind about certain types of home loans. Technically, a HELOC is a second mortgage, assuming you still have a first mortgage.) Once your funds are available, however, you can tap into your HELOC at any time, up to the approved amount.

Recommended: Calculating Home Equity

Required Documents for HELOC Closing

Before and during your HELOC closing, you should be prepared to provide and/or sign several documents. The HELOC requirements may vary depending on the lender, but the requested paperwork could include:

•   Your photo ID (a driver’s license or passport) and Social Security number

•   Proof that you have appropriate homeowner’s coverage on your property

•   An appraisal report that assesses your home’s current market value

•   A property title search and title insurance that ensures there won’t be any problems with liens or other issues

•   A mortgage or deed of trust that secures the loan against your home

•   A loan agreement that outlines your loan terms, such as the interest rate, repayment schedule, and penalties for late payments

•   A Truth in Lending Disclosure Statement that provides additional information about the costs of your loan

•   A closing disclosure that breaks down the fees, charges, and credits related to closing your loan

These documents are in addition to the paperwork you may be asked to provide during the application and underwriting process. Your lender will let you know ahead of time what and who you should have with you when you come to your closing.

Home Appraisal Process

Lenders typically require a home appraisal to get an accurate valuation of a property before approving different types of home equity loans. For a HELOC, this may be accomplished through a full-home appraisal, a drive-by appraisal (assessing only the exterior of the home and its condition), or with automated valuation tools. The type of appraisal you get may depend on how much you’re borrowing and other factors.

The lender typically orders the appraisal and will try to schedule it for a time that’s convenient for you. When it’s completed, the appraiser will provide the lender with a report that includes the home’s value, market comparisons, and other findings. The borrower usually pays for the appraisal at the closing.

Understanding HELOC Closing Costs

HELOC closing costs — the fees associated with getting your line of credit from a lender — are generally lower than the costs to close on a primary mortgage, cash-out refinance, or home equity line of credit. Still, the fees can add up quickly, and you may want to keep them in mind when you’re calculating the total cost of borrowing.

Typical Fees Involved

Some of the expenses you may encounter at closing include:

•   Application and/or origination fee: $15 to $75

•   Credit report fee: $10 to $100

•   Annual fee: $5 to $250

•   Appraisal fee: $300 to $450

•   Filing/notary fees: $20 to $100

•   Title search fee: $100 to $450 (if required)

Negotiating Closing Costs

Most HELOCS have closing costs or fees, but some lenders may offer to cover a few or all of those expenses. Others may give you the option of rolling your fees into the amount you’ll pay monthly. Remember that if you do this, you’ll add to the interest cost of your HELOC.

If you’re concerned about closing costs, you can always do some online comparison shopping to find out how much different lenders are charging. Or if you find a lender with an offer you like, you could ask if certain costs are negotiable.

HELOC Closing Meeting

Your lender will manage the final details of your closing meeting, including arranging the time and location (whether it’s in person or online) and letting you know what to bring. The lender will also ensure that a notary is on hand as you go through and sign the necessary paperwork.

You should have an opportunity to review your HELOC closing documents prior to the signing, but if you have any last-minute questions, you can cover them at this meeting. Any co-applicants should also be there, and you should bring a Power of Attorney document if someone can’t attend.

You probably won’t need to have an attorney at your HELOC closing, but you may want to have an attorney or financial advisor review the terms of your HELOC before you go. This person can also help you understand how HELOCs can affect your taxes.

Post-Closing Considerations

Once your HELOC is funded, you can borrow from it any time during the draw period (which usually lasts 10 years). You may be able to make interest-only or minimum payments during that time, or you may choose to pay something more toward the principal, in order to keep payments more manageable when you enter the repayment period. (Most HELOCs come with a variable interest rate, which means your interest rate — and monthly payments — could rise over time. In the HELOC vs. home equity loan decision-making process, this is one key difference. Home equity loans often have a fixed rate.)

Depending on your lender, you also may have an opportunity to convert all or a portion of your HELOC balance to fixed-rate loan, which can make payments more predictable and easier to budget for.

Recommended: Home Equity Conversion Mortgage vs. HELOC

Common Issues and How to Avoid Them

As with any type of financing, challenges may arise that delay or complicate the process. You may have control over some of them, while others may be out of your hands. Here are some common issues that could come up:

Problems with Documentation

Life gets busy, and the paperwork required for closing on a HELOC can easily get away from you. The lender’s closing checklist can be a useful tool for staying on track. You also can contact the lender before the closing to be sure everything is ready to go.

Unexpected Issues with Credit

A significant change in your financial situation could affect your loan approval, even in the final stages before closing. It can be a good idea to avoid making major purchases or opening a new credit account until your HELOC is a done deal. And be upfront with your lender about anything that might affect your eligibility, so there aren’t any surprises at the closing.

Delays in Getting the Appraisal

Your home appraisal can be a major factor in keeping your HELOC closing on track. Try to schedule the appraisal appointment as soon as possible, and ask if one of the quicker options (such as a drive-by or automated appraisal) is available.

Misunderstandings About Terms

Don’t wait until the last minute to read through your loan agreement. And compare the lender’s closing disclosure to the most recent loan estimate. If you’re unclear about the interest rate, repayment period, or any other details related to how your HELOC works, be sure to ask your lender ASAP.

Arranging Funds for Closing Costs

Verify the exact amount you’ll need for closing costs — and how you’ll be expected to get those funds to your lender (a wire transfer or cashier’s check, for example) — well in advance of the closing.

The Takeaway

A HELOC can offer a convenient and flexible way to tap into your home equity when you need money for renovations, debt consolidation, a rainy day fund, or other purposes. But it can take a few weeks to open this kind of account, and there’s some paperwork involved.
One way to help minimize problems or delays is to prepare in advance for each stage of the application and closing process. Your lender’s closing checklist can be a useful tool to help you stay on track. And it’s important to familiarize yourself with the terms of your HELOC agreement, so you can address any questions or concerns as soon as possible, and get your money without too much stress.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

How long does the HELOC closing process typically take?

For most borrowers, getting a HELOC takes about two to six weeks from application to closing. If you’re worried about the timeline, you can ask your lender how long it usually takes a HELOC to close and what you can do to speed things up.

Can I back out of a HELOC after signing the closing documents?

Yes. There is a three-day cancellation period for borrowers who use their primary residence to secure a HELOC. If you change your mind during that time, you may be able to back out of the transaction, even if you’ve signed the closing documents.

Do I need an attorney present at my HELOC closing?

You probably won’t need to have an attorney at your HELOC closing. But you may want to have an attorney or financial advisor review the terms of your HELOC before you go to your closing.

Photo credit: iStock/andresr

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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Can you pay off a HELOC early? Yes, it’s possible. But depending on your financial institution, there may be fees involved in clearing out what you owe on your home equity line of credit, so it’s important to understand how much you can truly save before you start making extra payments.

HELOC Repayment Structure Explained

A home equity line of credit is broken into two periods: the draw and the repayment period.

Draw period: In this portion of your HELOC, you can make interest-only payments on whatever amount you draw. It usually lasts between five and 10 years, during which time you can pay off some or all of the balance and replenish your available credit. Then you can draw again as needed and only accrue interest on your outstanding principal.

Repayment period: Once the draw period closes, you can’t pull funds from your HELOC anymore. Repayment begins on both principal and interest. Oftentimes, you’ll have a 10 to 20-year term to repay the full balance. The rate usually starts as variable, but you may be able to roll the balance into a fixed-rate home equity loan.

In some cases, however, there’s a balloon payment: Your entire balance, including principal and interest, comes due at one time unless you refinance.

Benefits of Paying Off a HELOC Early

There are some potential benefits to take advantage of when you pay off a HELOC early.

Interest savings: Interest accrues throughout the life of a HELOC and can increase even more over time if you have a variable rate. Paying off a HELOC early could save you money in the long run. (Different types of home equity loans accrue interest in different ways, so make sure you understand how a HELOC, for example, differs from a home equity loan.)

Improved equity position: A HELOC is considered a second mortgage, which means it has precedence in getting paid off right after your original mortgage. Paying off your HELOC means that when you calculate home equity, your equity number will be greater. And it may also smooth the path to a sale of your home. (Some lenders may require you to pay off your HELOC before you can sell your home.)

Financial freedom: Getting rid of your HELOC payment also frees up more of your budget to work toward other financial goals, like retirement savings, or putting money toward a special trip or other large expense.

Recommended: Home Equity Loan Calculator

Potential Drawbacks of Early HELOC Payoff

Can you pay a HELOC off early without any drawbacks? It depends. Here’s what to consider before making a decision.

Prepayment Penalties

Some financial institutions charge a HELOC early payoff penalty if you close your account within a certain timeframe, often within the first five years of repayment. Instead of charging a flat fee, banks usually charge a percentage of your loan balance, usually 2%.

The average HELOC balance in 2023 was $42,139; paying off that balance with a 2% early penalty would cost $843.

But not all lenders charge this fee. If you’re considering a HELOC and may pay it off ahead of schedule, prioritize quotes that don’t include any kind of HELOC early payoff penalty.

Loss of Tax Deduction

In some instances, you may be eligible for HELOC-related tax deductions. Any interest paid on a HELOC or home equity loan between 2018 and 2025 may be tax deductible if the funds are used to buy, build, or substantially improve your home. Additionally, the property must be your main or second home. Paying off your HELOC means losing that deduction, but you can only take this deduction if you itemize (and many people don’t). Consult a tax advisor so you’re not surprised by the numbers when it comes tax time.

Recommended: HECM vs. HELOC

Strategies for Early HELOC Payoff

Now let’s look at how can you pay off a HELOC early. There are a few strategies to choose from.

Lump sum payments: Making large payments on top of your regularly scheduled payments can help you chip away at your balance and interest accrual. However, check into can you pay off a HELOC during the draw period, because some lenders may limit you to interest-only payments during this time. Also, clearly communicate to your lender that the additional payments should be credited to principal only; otherwise the lender may apply the funds to interest.

Accelerated payment schedules: Consistently make extra payments toward your principal to lower your balance at a faster pace over time. Use a HELOC monthly payment calculator to experiment with how your monthly payment would look using different payoff dates.

Refinancing options: It’s possible to refinance your HELOC into another line of credit in order to change the terms, such as the available credit line or draw period. To pay off your balance early, however, you can apply to transfer it into a home equity loan, which could have a fixed interest rate and payoff schedule.

Impact on Your Credit and Financial Profile

You can close a HELOC early without hurting your credit in the short-term because accounts in good standing stay on your credit report for as long as 10 years. Once that period expires, the average age of your credit history may drop, which could temporarily affect your score. Incorporating other types of no-fee credit could help mitigate any future damage, especially if you’re confident you won’t carry a balance.

Evaluating Your Financial Situation Before Early Payoff

Take a look at your entire financial picture before deciding to pay off your HELOC early. Do you have a solid emergency savings account? Are you contributing to your retirement account? If you have other high-interest debt, consider whether you should pay that off as you decide where the HELOC balance falls on your priority list.

Another factor is how long you plan to stay in your house. If you want to move soon, find out if you need to pay off the HELOC in full before listing your home, or if you can repay the balance with the proceeds from the sale.

The Takeaway

Paying off a HELOC early can save you in interest payments over time. However, it’s important to understand the details of your financing agreement to avoid any unwanted prepayment penalty fees. If you’re actively searching for a HELOC, make sure that’s part of your comparison process so you have more control over when you pay off your balance without worrying about extra costs.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

Can I pay off my HELOC during the draw period?

Most lenders only require interest payments during the draw period, but you can usually make principal payments as well. That will lower the amount of interest being accrued while also replenishing your available credit.

How do I calculate potential savings from early HELOC payoff?

Use a HELOC calculator to find out how much interest you would save by paying off your balance ahead of schedule. If your lender charges an early payment fee, factor that cost into your potential savings to see if it’s worth it.

Will paying off my HELOC early affect my credit score?

As long as your account is in good standing, a HELOC will stay on your credit report for up to 10 years. After that, your average credit account age may drop unless you have other mature accounts to make up for the loss.

Photo credit: iStock/Riska

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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