HELOC Prepayment Penalty: What to Know Before You Pay Off Early

Thinking about paying off your HELOC early? Good instinct. But before you do, check one thing: Does your HELOC have a prepayment penalty?

Some do. Some don't. Here's how to find out—and when it's worth paying the fee anyway.

Do HELOCs Have Prepayment Penalties?

It depends on your lender and loan terms.

Unlike many primary mortgages (which often have no prepayment penalty), HELOCs vary widely:

• Many HELOCs: No penalty at all—close anytime
• Some HELOCs: Penalty if you close within first 2-3 years
• A few HELOCs: Penalty for up to 5 years

There's no universal rule. You need to check your specific loan agreement.

Types of Early Closure Fees

HELOCs can charge a few different types of fees for paying off early:

Early Termination Fee

The most common type. A flat fee if you close your HELOC within a certain period.

Typical amounts:

• $300-$500 flat fee
• Sometimes 0.5-2% of the credit limit
• Usually applies in first 2-3 years only

Closing Cost Recapture

Did you get a "no closing cost" HELOC? The lender paid those costs upfront. If you close early, they want that money back.

How it works:

• Lender paid $500 in closing costs when you opened
• You close within 3 years
• You reimburse them that $500

This isn't technically a "penalty"—it's cost recovery. But it has the same effect on your wallet.

Annual Fee Considerations

Not a penalty, but relevant: If you've paid an annual fee and close mid-year, you typically don't get a refund. Time your closure accordingly.

How to Check If Your HELOC Has a Penalty

Three ways to find out:

1. Read Your Loan Agreement

Look for terms like:

• "Early termination fee"
• "Prepayment penalty"
• "Account closure fee"
• "Minimum term requirement"

Check the fee schedule section of your documents.

2. Review Your Closing Disclosure

The closing disclosure you received when opening the HELOC should list any prepayment penalty. It's required to be disclosed.

3. Call Your Lender

Ask directly: "Is there a fee if I pay off and close my HELOC? If so, how much and how long does it apply?"

Get the answer in writing or document who you spoke with and when.

When the Penalty Might Be Worth Paying

Sometimes paying the penalty makes financial sense:

You're Selling the Home

If you're selling, the HELOC gets paid off regardless. The penalty is just a cost of the sale—factor it into your net proceeds calculation.

You're Refinancing to Better Terms

If a new HELOC or mortgage saves you significantly, run the math:

Example:

• Early termination fee: $500
• New HELOC saves: $200/month in interest
• Break-even: 2.5 months

If you'll have the new loan for years, $500 upfront is nothing.

You're Consolidating Into Your First Mortgage

Rolling your HELOC into a cash-out refinance of your primary mortgage might mean lower rates and simpler payments. One fee to simplify your finances may be worth it.

You Want It Gone

Peace of mind has value. If paying $400 to eliminate a debt forever feels right, that's a valid reason.

How to Avoid HELOC Prepayment Penalties

Ask Before You Apply

When shopping for a HELOC, ask each lender:

• "Is there an early termination fee?"
• "What's the penalty period?"
• "Are there any costs to close the account?"

Make this part of your comparison criteria.

Choose Lenders With No Penalty

Many lenders don't charge early termination fees. Credit unions are often more borrower-friendly on this point.

Wait Out the Period

If your penalty period is almost over, sometimes waiting a few months saves you hundreds. Check when your penalty expires.

Negotiate

Especially if you're a long-term customer or have multiple accounts with the lender, you may be able to negotiate the fee away. It doesn't hurt to ask.

Important: Paying Down vs. Closing

Paying down your HELOC balance: Typically no penalty. You can pay as much principal as you want, as fast as you want.

Closing the account: This is where penalties potentially apply.

You can reduce your balance to $0 and keep the account open to avoid the fee. The HELOC remains available if you need it later.

Consider this strategy: If you're approaching the end of your penalty period, pay down to $0 but keep the account open. Close it after the penalty expires.

The "Keep It Open" Option

Even after paying off your HELOC, you might want to keep it open:

Pros:

• No closure penalty
• Available for future emergencies
• Maintaining available credit can help credit score

Cons:

• Some lenders charge annual inactivity fees ($25-$100/year)
• Temptation to use it again
• May affect ability to get new loans (counts as available debt)

Weigh whether keeping a $0 balance HELOC open serves your financial goals.

The Bottom Line

HELOC prepayment penalties are common but not universal. Before paying off early, check your loan documents or call your lender.

Even if there is a penalty, it's often worth paying to improve your financial situation. Run the numbers, and don't let a $300-$500 fee stop you from making the right long-term decision.

At HonestCasa, we're transparent about all fees upfront—including any early termination provisions. See your HELOC options →

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FAQ

How long is the typical HELOC prepayment penalty period?

Most penalties apply for the first 2-3 years. After that, you can typically close your HELOC without any fees.

Can I negotiate a HELOC prepayment penalty away?

Sometimes. If you're a valued customer with multiple accounts, or if you're refinancing with the same lender, they may waive the fee. Ask—the worst they can say is no.

Is it better to keep my HELOC open with a $0 balance?

It depends. Keeping it open avoids closure fees and maintains available credit. But if there's an annual fee or you're tempted to use it, closing might be better. Consider your financial discipline and goals.

Does the prepayment penalty apply if I just pay down my balance?

No. Penalties typically apply only when you close the account. You can pay down your balance as fast as you want without penalty.

Do all HELOCs have prepayment penalties?

No. Many lenders don't charge early termination fees. Credit unions are often more flexible. Ask about this before you apply.