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A home equity line of credit (HELOC) is a revolving credit line secured by your home equity.
Reasons to take out a HELOC include debt consolidation, home improvements, and “just in case” situations where you might need emergency cash. But can a HELOC be canceled?
The short answer is yes—by the lender or the borrower. Keep reading to find out when a HELOC can be canceled and what’s required.
In this guide:
- Can the lender cancel my HELOC?
- What is the difference between canceling and freezing a HELOC?
- Can I cancel my HELOC?
- What should I do if I’m outside my 3-day cancellation window?
Can the lender cancel my HELOC?
HELOCs have a draw period that lasts several years (often 10), during which you can spend from your credit line.
When that ends, you enter a repayment period, during which you can no longer draw from your credit line, and you must pay back what you borrowed with interest. If you pay your balance down to $0 during the repayment period, the lender could cancel your HELOC.
Canceling a HELOC is different from a HELOC freeze, which we’ll explain below.
For what reasons can a bank cancel my HELOC?
The Truth in Lending Act outlines specific scenarios in which a lender can terminate a HELOC and demand payment in full, including:
- Evidence of fraud or misrepresentation on your part in obtaining the line of credit.
- You fail to meet your payment obligations to the lender.
- Action or inaction on your part affects the lender’s interest in the home used to secure the HELOC.
However, your lender cannot cancel your HELOC if you pay as agreed. It also can’t demand you accelerate repayment or change the terms of your HELOC if your account is in good standing.
Will the lender refund the fees I paid if it cancels my HELOC?
HELOCs can come with fees, including upfront costs you pay at closing and annual maintenance fees. Your lender may charge an inactivity fee if you open a HELOC but don’t use it or a cancellation fee if you decide to terminate the line of credit before the end of the repayment term.
Any fees should be outlined in your HELOC agreement. If your lender cancels your HELOC for any of the reasons listed above, it will not refund the fees you paid.
If I keep a balance on my HELOC, will that stop the lender from canceling it?
Maintaining a balance on a HELOC won’t stop a lender from canceling it if you obtained the HELOC through fraud, stopped paying, or otherwise compromised the lender’s security interest in the home.
Cancellation won’t erase the balance either; you must still pay back any borrowed funds with interest.
If your account is in good standing, and you’re paying the balance as agreed, the lender has no grounds to cancel. It could, however, reduce or freeze your HELOC with a balance in place under certain conditions.
What is the difference between canceling and freezing a HELOC?
When a HELOC is canceled, it’s terminated. A lender may cancel a HELOC under the terms outlined in the Truth in Lending Act. You could also cancel the HELOC yourself by paying it off. (Your lender might not automatically cancel the account if you pay it off during the draw period, so if that’s your intention, we recommend contacting your lender.)
Freezing a HELOC means the lender hits a temporary pause button, blocking you from accessing additional funds from your credit line.
Lenders can freeze a HELOC if:
- Changing market conditions significantly reduce the home’s value.
- A shift in your financial situation makes the lender question your ability to repay your credit line.
- There’s been a substantial change in your credit rating.
If your HELOC is frozen, you might be able to unfreeze it. You can ask your lender to unlock your credit line if the reasons for the freeze no longer apply.
For example, suppose your lender froze your HELOC because your home value fell. If the value rises again, you might regain access by sharing a new appraisal with your lender.
The lender might also reinstate your HELOC without requiring you to request it if it determines the situation that prompted the freeze has changed.
What happens to my frozen HELOC after I pay it off?
Lenders can use discretion when deciding what happens to a frozen HELOC after it’s paid off. Your lender might decide to unfreeze your credit line so you can make new withdrawals, or it might close your HELOC once you pay it off.
If you’d like to pay off a frozen HELOC but retain access to it, the best course of action is to speak to your lender. Your HELOC specialist can review your finances and the terms of your credit line to determine whether it makes sense to keep it open with a $0 balance once the freeze lifts.
Can my lender reduce my HELOC rather than cancel or freeze it?
Your lender could reduce your HELOC instead of freezing it outright. The justifications for a HELOC reduction are the same as those for a freeze:
- Your home’s value has dropped.
- The lender suspects you won’t be able to make the payments.
- Your credit score has changed.
HELOCs require you to pay back only the amount you use. Payments are based on how much you’ve borrowed and the interest rate, which may be variable or fixed. So a lower credit line won’t always affect your payment amount.
Note: Your bank must give you three business days’ written notice before freezing or reducing your HELOC. The notice will explain the reason.
Can I cancel my HELOC?
If you take out a HELOC and then change your mind, you have a small window in which to cancel it. The “three-day rule” specifies when you can cancel a HELOC and what to do to terminate your agreement with the lender.
You have three business days to rescind a HELOC or home equity loan agreement without having to pay anything to the lender. You can cancel a HELOC for any reason, but only if you used your primary residence to secure it.
How do I calculate my three-day HELOC cancellation window?
The three-day rule allows you to cancel a HELOC in writing until midnight of the third business day after it’s opened. Day one begins the business day after the following three conditions are met:
- You sign the loan at closing.
- The lender provides you with a Truth in Lending disclosure form that includes details about your HELOC agreement.
- You receive two copies of a Truth in Lending notice explaining your right to cancel.
Saturdays, but not Sundays, are included when calculating the three business days. Public holidays are excluded.
Here’s an example of how cancellation works. Say you close on your HELOC on a Friday afternoon, at which time you sign the loan documents and receive all the necessary disclosures. In this case, the end of the third business day would be Tuesday, so you have until midnight on Tuesday to notify the lender you want to cancel.
However, if your lender provides the necessary disclosures on Monday, that bumps your cancellation deadline to midnight on Thursday. Keeping track of when you receive each disclosure can help you avoid missing your cancellation window.
For what reasons can I cancel a HELOC?
As we mentioned, you can cancel a HELOC within the three-day window for any reason as long as the home that secures it is your primary residence. If you take out a HELOC on a vacation home or second home, the three-day rule doesn’t apply.
So you could cancel a HELOC if you:
- Find better terms with a different lender.
- Decide a home equity loan makes more sense.
- Change your mind about borrowing against your home equity.
If your lender fails to provide the disclosure—or it did, but the disclosures are incorrect—you may have up to three years to cancel your HELOC. The Consumer Financial Protection Bureau advises consumers to consult an attorney if they believe they may still be eligible for cancellation under those circumstances.
How do I notify the lender I want to cancel my HELOC?
To request cancellation, you must provide a written notice to the lender. You cannot cancel a HELOC over the phone or in a face-to-face conversation at the bank.
Your written request for cancellation must be mailed or delivered before midnight on the third business day. You don’t have to provide a specific reason for the cancellation, but you need to state you no longer want to open the HELOC.
Does the lender return the fees I paid if I cancel a HELOC?
If you cancel your HELOC within the three-day window, the lender must return all the fees you paid.
- Finance charges
- Application fees
- Appraisal fees
- Title search fees
The lender has 20 days after receiving your request to return your money and release the interest in your home as collateral for the HELOC. You can keep any money you receive from the lender until it releases your home as collateral and refunds the fees.
What should I do if I’m outside my 3-day cancellation window but no longer want my HELOC?
You can cancel your HELOC early if you’re outside the three-day cancellation window and no longer want it. First, you must pay the balance down to $0. The lender might charge a cancellation fee for paying it off ahead of schedule.
You can ask the lender about canceling a HELOC early if you’ve never used it, though the bank isn’t required to honor that request outside the three-day window. In that case, you might keep the HELOC open but not use it.
This scenario has pros and cons:
- An open line of credit could help boost your credit score if it improves your credit utilization ratio.
- You’d still be responsible for any annual or maintenance fees the lender charges for the HELOC.
- A $0 balance won’t affect your debt-to-income ratio, but if you apply for other loans, lenders may question why you have an open HELOC you’re not using.
Evaluating your financial situation and needs can help you decide whether a HELOC is right for you.
If you have additional questions, check out our HELOC guide.
Author: Rebecca Lake