Is there a HELOC prepayment penalty?
Answer:HELOCs usually don't have a regular prepayment penalty. Rather, a HELOC prepayment penalty applies not if the loan is prepaid, but if the line of credit is closed in less than 3 years (or 36 months) and usually varies from $500 to $1000.
Common HELOC cap is 18%, and some lenders will offer fixed-rate as well as adjustable rate HELOCs. Prepayment penalties will apply to both if you decide to close the line.
If rates are rising, however, it makes sense to refinance your HELOC into a lower rate second mortgage and even though there are closing costs involved, often you will make up quickly what you paid to walk out of your HELOC within a year.
Mind it, HELOCs often start with great teaser rates, but those can promptly go over 10% after the introductory period. However, a HELOC is considered as the emergency line, so some people will not expect to use it as often as to need to refinance or incur HELOC prepayment penalties.
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