Why can't an advertised rate tell you what a home equity loan or HELOC will cost?

Summary

An advertised rate is the lowest price for the borrower who meets every condition, and an interest rate leaves out fees by definition. APR adds fees in, but the CFPB warns that a HELOC's APR doesn't include them the way a closed-end loan's APR does, so the two can't be lined up directly. Neither number shows where a variable rate goes, what happens when an intro rate ends, what closing a line early costs, or how much principal is left when you sell.

What each number leaves out

Number	What it measures	What it leaves out
Interest rate	"the cost you will pay each year to borrow the money"	Fees and other charges
APR on a closed-end loan	The rate plus points, broker fees and other charges	The years you actually hold the loan, and the balance at sale
APR on a HELOC	The rate on the line	Fees, which it "doesn't" include

The CFPB's advice on the last row is blunt: "Be careful about comparing the APR of a closed-end loan, which includes fees, to the APR of a home equity line of credit, which doesn't."

Read the footnotes on one real ad

FourLeaf Federal Credit Union leads its HELOC page with "5.99% APR." That is an introductory rate fixed for 12 months, and it applies only if the line's combined loan-to-value ratio is 75% or less, your VantageScore 4.0 is at least 720, you draw $25,000 or more at opening and keep that balance for 12 months, you pay by automatic transfer from a FourLeaf account, and you haven't had a FourLeaf intro rate in the past five years. After the first year the rate becomes the Prime Rate plus a margin.

The standard rate, "as low as 7.00% Variable APR," has its own conditions: a combined loan-to-value ratio of 65% or less and a $25,000 initial draw, with a 0.25% discount for that draw and another 0.25% for automatic payments already built in. The page sets a floor of 3.25% and a ceiling at the federal credit union legal limit, currently 18%.

A fixed loan can carry a seven-point range

Regions Bank prices its home equity loan from 6.75% APR to 13.75% APR, based on occupancy type, lien position, credit, loan-to-value ratio and term. Its two printed examples show the spread in dollars. $50,000 over 10 years at 6.75% is $574.12 a month, and $50,000 over 15 years at 13.75% is $657.49 a month. The ad's "as low as 6.75%" is the bottom of that range.

Fees that never show up in the rate

A HELOC can carry charges that never touch the rate. The CFPB counts six kinds: a fee to apply, the origination, appraisal and title costs of opening the line, a charge for leaving it unused, a yearly or membership fee, a fee for closing it early (it says this usually applies "within the first two or three years"), and a fee to move part of the balance to a fixed rate.

Even a no-closing-cost offer can come with a string attached. FourLeaf pays the closing costs, but the borrower has to repay them if the line is closed within 36 months, and the credit union puts those fees at $500 to $15,000 in most cases. Sell in year two and that clause can matter more than the rate.

A home equity investment has no rate at all

Point's HEI has "no monthly payments or interest accrual." The cost sits in the settlement instead, and the CFPB found that under many contracts "the settlement amount grows at a rate of 19.5-22% per year in the early years." An empty rate column on an HEI row means there is nothing to compare it with, not that it is cheap.

Sources

Written by Kaz (pen name). Figures are copied from providers' published pages on the dates shown. We have not used these products. Corrections: contact form.