For example, some plans involve transaction fees charged every time you make a withdrawal against your line of credit, while others do not. Additionally, annual fees and other charges on home equity loans, including membership fees, appraisal fees, document inspection fees and other expenses charged by outside parties, are often not fully disclosed in advertising. Find out if your lender charges an inactivity fee. Borrowers who do not use their line of credit within one year or other time period may be charged an inactivity fee, which could be substantial. Be sure high annual fees and other costs do not outweigh the tax advantage of the home equity loan, especially if you are only borrowing a small amount.
Lenders fix their application fees at anywhere from a few hundred to several thousand dollars.
Others may have no fees or base their fees on a percentage of the total amount of the credit line. In either case, if you only use a small amount from the credit line, the fee may equal or outweigh any interest rate advantage or tax deduction. Be careful of interest-only payments on home equity loans. Refinancing that balloon payment instead of paying it off may require paying more new-loan fees. Find out whether your lender has the right to change the terms and conditions of your plan or terminate your plan.