Borrowing against your home can come with costs beyond interest. Many of them, known as closing costs, are charged when the loan is set up. Lenders also order an appraisal to work out your loan-to-value ratio, which shapes how much you can borrow. Knowing what each cost is, and whether you pay it now or over time, helps you compare offers on what they'll actually cost.
This guide is for educational purposes only and isn't financial advice.
Your home secures the loan
A home equity loan or HELOC is secured by your home. Your house is the collateral, so if you can't repay, you could lose your home. That's a big part of why these loans involve steps like an appraisal and title work, and why it's worth understanding every cost before you sign.
What closing costs are
Closing costs are the fees and charges for setting up a loan. They pay for things like checking the home's value, confirming who owns it, recording the lender's lien and processing the application. Which ones apply, and how much each one is, depends on the lender, the type of loan and where the property is. Lenders set their own fees, and they can differ a lot from one offer to the next.
Common fee types
Not every loan has every fee, but these are the ones you'll see most often:
- Appraisal or valuation fee: pays for an estimate of the home's current value, which the lender uses to work out how much equity you can borrow against.
- Origination or application fee: the lender's charge for processing the loan. Our guide on loan origination fees explains how these work.
- Title search and title insurance: confirm who owns the property and protect the lender against title problems.
- Recording fees: charged by the local government to record the lien.
- Credit report fee: covers the lender pulling your credit.
- Document preparation, settlement or attorney fees: for preparing and handling the closing paperwork.
- Flood certification: checks whether the property is in a flood zone.
A HELOC can also come with ongoing or exit charges, such as an annual fee, an inactivity fee if you don't draw on the line, or an early closure fee if you close the line within a set period.
Paid upfront vs. rolled in
You usually have two ways to cover closing costs:
- Pay them at closing. You need the cash now, but you don't borrow it, so you don't pay interest on it.
- Roll them into the loan. Some lenders let you add the costs to the amount you borrow. You need less cash up front, but your balance is larger, and you pay interest on those costs over the full term. Rolling costs in also uses more of your equity.
Some lenders advertise reduced or no closing costs. Read how that works: the lender may charge a higher rate instead, or ask you to repay the costs it covered if you close the loan or line early.
How to compare total cost
The fee list on its own doesn't tell you which offer costs less. Line up each offer the same way:
1. List every fee, both at closing and ongoing, and ask the lender for it in writing.
2. Note whether fees are paid up front or added to the balance.
3. Compare the APR, which for a home equity loan is meant to include certain fees along with the interest rate. For a HELOC, the APR may not reflect every fee, so check the fee list too.
4. Work out the total you'd repay over the term, using the amount you'd actually borrow including any rolled-in costs.
5. Check the payment against your budget, including in a tight month.
Our guide on how to compare the total cost of a loan walks through these steps in more detail. To see how the amount, rate and term change a monthly payment, try the home equity loan payment calculator.
Questions to ask each lender
- Which closing costs apply, and what does each one cover?
- Can costs be rolled into the loan, and how would that change the total?
- Are there ongoing fees, or a fee for closing the line early?
- If closing costs are reduced, is there a trade-off in the rate or terms?
Next steps
Lendara is a marketplace, not a lender. Lendara receives compensation from partners, which may impact which offers appear and their order; we don't include all offers available. Participating lenders make their own credit decisions and set their own criteria, rates, fees and terms, which vary by applicant. Remember that a home equity loan or HELOC is secured by your home. You can explore home equity and HELOC options from participating lenders and compare their costs side by side.
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