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When a HELOC Fee Makes Sense

Fees can make an otherwise affordable loan expensive. But some fees, such as the annual maintenance fee charged on a home equity line of credit (HELOC), can actually lower the costs of your loan, depending on how you intend to use your HELOC.

Many of the fees associated with a HELOC should be avoided, such as an application fee, an appraisal fee, and a "non-usage" fee charged for leaving the money in your line of credit untouched. (The non-usage fee is particularly disagreeable, since one of the main benefits of a HELOC is its usefulness as a safety net in case of emergencies.) But the decision to choose a HELOC with an annual fee depends on whether it offers a better interest rate than non-fee loans and how frequently you plan on withdrawing money.

To help you decide, head to's home equity section and enter your ZIP code for a list of rate offers in your area. Residents of North Carolina, for instance, can apply for a $50,000 HELOC from Fifth Third Bank (FITB - Get Report) with an interest rate of 3.75%, as long as they are willing to pay a $65 annual fee. Alternatively, they could apply for the same-sized line of credit from Southern Community Bank and Trust (SCMF) or Citizens South Bank (CSBC) at interest rates of 5.0% and 6.0%, respectively, and not have to pay any annual rate.

The next step is to figure out whether the lower interest rate is worth the extra fee you're paying. There's only a 1.25 percentage point difference in rates between the HELOCs offered by the Fifth Third Bank ($65 fee) and the Southern Community Bank and Trust (no fee). If you withdrew $25,000 on the first day of your line of credit and didn't repay it for a full year, the $65 fee would save you $312.50 in extra interest ($25,000 x 1.25% = $312.50). However, if you choose instead to use your HELOC only for emergencies and make repaying the balance a priority, you may not incur enough interest charges to warrant the $65 annual fee.

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