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.
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.
In this guide:
- Why might I send a HELOC close out letter?
- When can I send my lender a HELOC close out letter?
- Can my lender send me a HELOC close out letter?
- What does a HELOC close out letter look like?
- How do I know the lender received my HELOC close out letter?
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. 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.
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?
You might need to close out a HELOC with a balance in place. For example, 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. 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.
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.
Suppose the lender freezes your HELOC because your home value dropped. You might be able to regain access if your equity increases later.
What does a HELOC close out letter look like?
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.
Here’s a sample HELOC close out letter from Chase Bank:
Source: Chase Bank
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.