Without question, HELOCs are one of the most cost-effective and efficient means of borrowing available to average consumers. It is relatively easy to find HELOC offerings with attractive interest rates being offered with “no-closing” costs.

The reality, of course, is that there are closing costs associated with the loan, but the lender is eating those costs in order to attract business. Typical closing costs picked up by the lender can total several hundred dollars and include appraisal fees ($200-$500); credit report fee ($12-$20); attorney’s fee ($100-$300); abstract or title fee ($100-$150); recording fees ($125-$175); and, flood determination fee ($10-$15).

As so often is the case, the catch is in the fine print:

There are no application fees, points or closing costs. (2)

(2) An early closure release fee may be charged to recover all costs incurred in originating your loan and may apply if you close your account within 36 months.

As suggested in this Fatwallet forum thread one way to possibly avoid the early closure fees is to ask the lender for an increase in the line of credit. Very often, too, if the HELOC account is closed due to sale of the home early-closure fees are waived.

There is nothing underhanded about early closure penalties; lenders incur significant costs in the hopes of building long-term, mutually beneficial HELOC relationships. To the extent this does not happen, it is not unreasonable for the lender to recoup their front-end costs. Borrowers simply need to be fully aware of these possible fees and the consequences of terminating an account too soon.