What Happens When Your HELOC Loan Has A Zero Balance


A Home Equity Line Of Credit (HELOC) is a revolving loan borrowed against your home’s equity. That means the amount you owe will vary from month to month, like a credit card. The minimum amount you have to pay will also change. It’s possible to have an open line of credit with a zero balance.

The HELOC offers you access to a specified amount of money, but you do not have to use any of it. At any time, you can pay off any remaining balance owed against your HELOC. Most HELOCs have a set term—when the term is up, you must pay off any remaining balance.

If you pay off your HELOC balance early, your lender may offer you the choice to close the line of credit or keep it open for future borrowing.

Why you should close a HELOC

  • Sometimes, a lender will charge annual fees for open lines of credit. If you pay off your HELOC early and don’t want to pay the annual fees, closing the line of credit can be a good idea.
  • You cannot sell your home, get a second mortgage, etc. while the HELOC is open. The line of credit includes a lien against your property, which must be released (by closing the HELOC) before you can transact on the property.
  • Why you should keep a HELOC open

  • If your HELOC has a zero balance, your credit score will benefit in two ways. One, your average “length of credit history” will be increased every month the HELOC remains open. This accounts for 15% of your FICO score.
  • Second, your “amounts owed”, which is 30% of your score, includes how much of your total credit line is being used. Having a large amount of unused credit will provide a big boost to this part of your credit score.
  • Since there are compelling reasons for both closing and keeping a HELOC open, this will have to be an individual decision based on each borrower’s circumstances. A housing counselor can help you decide what to do when your HELOC reaches zero balance. Call us today for a where we can answer your questions and help you decide how to proceed.