If a home equity loan or HELOC has no closing costs, what fees are left, and is the interest tax-deductible?

Summary

Several. "No closing costs" means the lender pays the opening costs, and at least one lender takes them back if you close the line within three years; annual, inactivity, late and conversion fees are separate. The interest is deductible only if you itemize and the money went into buying, building or substantially improving the home that secures the loan. Interest on money used to pay off credit cards is not deductible.

What "no closing costs" covers

Three of the lenders this site tracks advertise it. Regions Bank says "Bank pays all closing costs" on its home equity loan. Truist says "We pay closing costs for you." FourLeaf Federal Credit Union covers closing costs on its HELOC, including application, origination and appraisal fees.

Only FourLeaf spells out a string attached. Its costs on the first $500,000 "must be repaid by the borrower(s) if the HELOC is closed within first 36 months of account opening," and it says they "generally range between $500.00 and $15,000.00." Regions puts no footnote on its closing-cost line. Truist's page carries a general disclosure that "credit criteria, exclusions, and limitations apply," without saying which ones touch closing costs.

FourLeaf has a second early-payoff cost that has nothing to do with closing: "The APR will increase by 0.25% if at any time your outstanding HELOC balance falls below $25,000.00 within the first twelve (12) months of account opening." Pay the line down fast in year one and the rate goes up.

Other lenders describe their opening costs differently. Rocket Mortgage says "no origination fee." Spring EQ says "There is a lender fee but no annual fee," and gives no amount.

Fees that show up later

The CFPB's list of HELOC charges has six entries: an application fee, closing costs such as origination, appraisal and title, "an inactivity fee – a fee for not using your HELOC," an annual or membership fee, a cancellation fee "usually within the first two or three years," and a fee for converting part of the balance to a fixed rate. Its HELOC booklet warns that annual and other fees can apply "even if you are not actively using the credit line."

Lenders differ on which of these they charge. FourLeaf lets borrowers convert to a fixed-rate option "for no additional cost." Spring EQ has no prepayment penalty. Regions lists one potential fee on its loan, a late fee of "5% of the payment amount ($29 minimum, $100 maximum)." On a $50,000, 10-year loan at 6.75%, the payment is $574.12, 5% of that is $28.71, and the $29 minimum applies.

When the interest is deductible

IRS Publication 936 (2025) says interest on home equity loans and lines of credit is "deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer's home that secures the loan." The home has to be your main home or a second home, you have to itemize on Schedule A, and the deduction covers interest on up to $750,000 of mortgage debt across both homes ($375,000 if married filing separately).

The IRS FAQ is blunt about the other case: interest on the same debt "used to pay personal living expenses, such as credit card debts, is not deductible." Before 2018 the use of the money did not matter, which is why older articles say otherwise. Publication 936 now applies the rule "no matter when the indebtedness was incurred."

On the $50,000 loan above, first-year interest comes to about $3,264. Spent on a kitchen remodel, that interest can count toward an itemized deduction. Spent on paying off cards, the same $3,264 counts for nothing at tax time. The figures on this site are shown before any tax effect.

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.