What Is a HELOC Close Out Letter?

When you close a home equity line of credit (HELOC), you no longer have access to your credit line. Lenders can close out a HELOC at the end of the repayment term once the balance is paid in full. They can also close it out at the end of your term with a balance and create a new loan with the balance.

You might request a close out under certain circumstances. 

Either way, you need a HELOC close out letter to finalize the cancellation. The letter acknowledges the line of credit is closed. Who sends a HELOC close out letter can depend on whether the lender or the borrower initiates the cancellation. 

Why might I send a HELOC close out letter?

You might need to send a HELOC close out letter to your lender in several scenarios. For example, you might request to close your HELOC if you:

• Are selling the home. This situation results in an automatic close out—after all, your home is being used as collateral. You may need to prove the HELOC is closed and you no longer have access to your credit line as a condition of finalizing your home sale.
• Want to get a new HELOC or home equity loan. If you’re applying for a new HELOC or a home equity loan, the lender may require you to close out an existing line of credit first. You might need a HELOC close out letter to document the closure. 
• Don’t need your HELOC. You might close a HELOC early if you no longer need access to your credit line. In that case, you could ask the lender to close it.
• Want to avoid fees. Lenders may charge monthly or annual fees to maintain a home equity line of credit. If you’re not using your HELOC and want to avoid those fees, you can ask the lender to close it. 
• Need to reduce your debt-to-income (DTI) ratio. You may need to close out your HELOC to achieve an adequate DTI to obtain another loan.
• Want to reduce spending. Similar to cutting up credit cards, closing out a HELOC can help you avoid unnecessary spending.

When can I send my lender a HELOC close out letter?

If you confirm your lender will allow you to terminate your HELOC early, you should be able to send a close out letter any time during the draw period or repayment period. The draw period for a HELOC is the window in which you can withdraw money. You’ll pay back what you borrow during the repayment period. 

A different time frame applies if you open a HELOC and then change your mind about using it. In that case, you must submit the request to cancel to your lender in writing within three days to cancel a HELOC and get a refund on the money you paid to the lender. (Read our resource on HELOC cancellation for more about the three-day rule.)

Can I send a HELOC close out letter if I owe a balance?

Yes, you can request to close out a HELOC with a balance in place. Maybe you plan to use part of the proceeds from the sale of your home to pay off your HELOC, but you need to close the HELOC to wrap up the sale. 

In that case, you must send your lender a HELOC close out letter for the sale to go through because you must close the HELOC after your home is sold.

Requesting closure of a HELOC doesn’t release you from the obligation to repay an outstanding balance. Depending on how the lender formats its HELOC close out letter template, specific wording may detail your responsibility for any remaining balance. 

Can my lender send me a HELOC close out letter?

Generally, a lender can’t close a HELOC until the balance reaches $0 at the end of the repayment term. If you pay off your HELOC, your lender could send a letter acknowledging the loan has been paid in full. 

However, Regulation Z of the Truth in Lending Act allows lenders to terminate a HELOC if:

• You misrepresented yourself or committed fraud in obtaining a line of credit.
• You fail to meet the repayment terms of your agreement.
• Action or inaction on your part harms the lender’s security interest in the home.

Your lender may reduce your credit limit or freeze your HELOC for reasons including: 

• A significant drop in the value of your home.
• A drastic change in your credit rating.
• It believes you won’t be able to make your payments. 
• Failing to meet payment terms set in your agreement.

The lender must send you written notice if your HELOC is closed, reduced, or frozen to explain why. 

If your lender sends a letter stating it’s reducing or freezing your HELOC limit, you could ask it to reinstate your line of credit if your situation changes. 

If the lender freezes your HELOC because your home value dropped, you might be able to regain access after your equity increases. 

What does a HELOC close out letter look like?

Here’s a sample HELOC close out letter from Chase Bank:

Source: Chase Bank

Your lender might offer a HELOC close out letter sample document or standardized form you can submit. It may be available on the lender’s website or via email by request. 

Depending on your bank or lender, you may be able to return it by mail, fax, or in person at a branch. 

A HELOC close out form can vary by lender. You can expect to provide the following:

• HELOC loan number or account number
• Address of the property used as collateral for the credit line
• Your name and signature
• The date of your request

The letter should specify you’re requesting to close your HELOC and acknowledge you’ll no longer have access to your credit line. It should also state you assume responsibility for any remaining balance owed. 

How do I know the lender received my HELOC close out letter?

Once you request to close a HELOC, your lender should send confirmation it received the request. It should send a separate notice it removed the lien on the property that secured the loan if you’re closing a HELOC with a $0 balance. 

It’s wise to follow up with the lender to ensure it received your letter. Maintenance fees could continue to accrue as long as the account remains open, which could mean a surprise bill if you assumed the account was closed. 

If you’re worried about your HELOC close out letter getting lost in the mail, you could send it via certified mail with tracking or fax it. We also recommend making a copy of the letter for your records. 

Check out our guide if you want to understand more about how HELOC repayment works.

FAQ

What should I do if my lender closes my HELOC?

If a lender closes out a HELOC, it provides a notice containing details of the action. You should immediately review the document for accuracy. If you find inaccuracies, notify the financial institution as soon as possible, and maintain supporting documents in case you need them later.

How does closing out a HELOC affect my credit score?

If a lender closes your HELOC, it could damage your credit score. It may lower the amount of credit available to you, affecting your credit utilization ratio. Your credit score could also take a hit if your HELOC is your only form of revolving credit. However, paying all debts on time and maintaining a low balance will help in maintaining a healthy credit score.

Can I reopen a closed HELOC, or do I need to apply for a new one?

Reopening a closed HELOC is not typically possible. Once it’s closed, whether by you or the lender, you must apply for a new HELOC. The process would be the same as the initial application, involving credit checks, home appraisals, and a comprehensive financial review.

What happens if an error occurs in the close out process?

If an error occurs, such as an incorrect balance or missing information, notify your lender right away. You should provide all necessary documents that refute the error and request your lender for a written acknowledgment of the issue. It’s essential to stay vigilant and responsive to protect your rights and minimize potential financial impacts.