FG Trade/GettyImages; Illustration by Hunter Newton/Bankrate
Key takeaways
- One way to clear medical debt or cover upcoming healthcare costs is to tap into your home’s equity via a HELOC.
- HELOCs offer flexible repayment periods with few restrictions and lower interest rates than personal loans or credit cards.
- On the downside, HELOCs put your home at risk if you can’t make payments, and their variable interest rates can make payments jump in size.
If you’re struggling under the weight of medical bills or worried about covering future care costs, there may be one way to lighten the load: tapping your home equity. But is it a wise move? Read on for a full check-up to determine if the procedure is worth the risk.
Can you use your home to pay medical bills?
If you have a sizable equity stake in your home – meaning you have paid off a chunk of your mortgage – yes, you can borrow against it to pay medical bills. One easy way to tap the funds is via a home equity line of credit (HELOC), which gives homeowners flexibility around both borrowing and repaying funds.
To get approved for one, you’ll need to follow a lender’s criteria for HELOCs and home equity loans, which typically require that you have a 20 percent equity stake in the property, and that you leave at least 10 to 15 percent of it untapped.
How using a HELOC to pay medical bills works
A HELOC is a revolving form of credit, functioning much like a credit card with a very large limit (up to $500,000 or even more). Once the line of credit is established, you can withdraw sums on a rolling basis. Some lenders mandate a large minimum draw upon opening the HELOC. You can literally access those funds in a variety of ways, including an online transfer, a check or a debit card connected to your account.
You can only borrow money during the first phase of the HELOC, known as the draw period. It usually lasts up to 10 years.It usually lasts up to 10 years, often requiring minimal monthly payments of just the interest. When the draw period ends, you’ll enter the repayment period, during which you’ll pay back the money you’ve borrowed, plus the interest.
Repayment periods can last as long as 20 years, though you usually have the option of paying off the HELOC sooner.
Even with bad credit, you can get a HELOC to pay your health-care bills. Of course, the stronger your credit score and financials, the better the interest rate and terms will be.
Pros and cons of using a HELOC for medical bills
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A HELOC might sound like the solution to wiping out medical expenses, but as with any financial strategy, there are advantages and drawbacks.
Pros
- You borrow only what you need. During the draw period, you can withdraw as much money as necessary (within your limit) to pay for medical expenses as they come up.
- Pay interest only on the sums you draw. With many HELOCs, you have the option to pay back just the interest (rather than interest and principal) during the draw period. Also, you’ll only pay interest on the amount you actually use.
- Comparatively low-cost loan. While your exact APR will depend on the lender and your creditworthiness, HELOCs typically have much lower interest rates than credit cards or personal loans. HELOCs may also have better rates than medical loans (a specific type of personal loan for medical bills).
- Long repayment options. The timeline for your HELOC can vary depending on the amount you borrow and your lender, but typically lasts 20 or 30 years. Repaid principal goes to refresh the credit line, and you can borrow that money again.
Cons
- You could lose your home. The biggest drawback of a HELOC: It’s a secured loan, backed by your home, meaning you could lose it to foreclosure if you don’t make timely payments. Another serious thorn: If home values fall, you could owe more on your home than it’s worth.
- You’ll have a variable interest rate. HELOCs usually come with fluctuating interest rates, meaning they can change up or down over time. That means your monthly payments can vary and, if interest rates rise in general, you’ll be paying increasing amounts, pinching your budget.
- There can be big payment jumps. Your minimum monthly payments are going to make a big leap — often doubling at least — once you enter the repayment period, as they’ll include both principal and interest. Also, your HELOC might come with a balloon payment when the draw period ends — a large lump-sum payment of the outstanding balance. Should you sell your home, you’d have to settle the HELOC immediately too, cutting into your proceeds.
- It’s still debt. Using a HELOC for medical expenses essentially replaces unsecured debt with secured debt: It’s shifting your burden, but not eliminating it. Depending on how it’s reported, the extra HELOC debt could hurt your credit score. In contrast, most medical debt no longer appears on consumer credit reports, as of March.
Home equity to the retiree’s rescue
Retirees and senior citizens, who typically face not just one-time medical expenses but ongoing, long-term care costs, often use their home equity for healthcare — whether they plan to or not, a recently published research brief by the Center for Retirement Research at Boston College found. The brief analyzed a RAND Health and Retirement Study, focusing on Medicare-covered individuals aged 65-plus, with over $100,000 in investable assets. The year they were hit with a long-term healthcare “shock” (major cost), the value of their primary residence declined, suggesting they borrowed against it to finance the expense.
Ironically, in a 2024 Greenwald Research survey cited by the brief, only one-third (31%) of a similar demographic of respondents said they would use home equity to manage healthcare or long-term care costs. “People do not expect to tap home equity, but typically end up doing so,” the brief concludes.
What to consider before using your home’s equity to pay for medical bills
Using home equity for medical bills shouldn’t be your first option. While it can give you access to cash fast, there are a number of downsides and risks – the biggest being that you are putting your home on the line. Should you default on the HELOC, the lender could seize the place and evict you.
You should also consider how you want to draw the funds. If you’re using them to tackle a chunk of existing debt, you’ll probably want to make a large one-time draw. If you’re earmarking them for upcoming expenses, you’ll want to draw funds as you need them. In either case, have a plan for repaying them, noting any fees the lender imposes. Many lenders charge annual fees for keeping the line open or, conversely, prepayment penalties for closing it earlier than the scheduled term.
Money tip:
If you do make a sizable single draw, it might be to your advantage to lock in the interest rate on it, as many lenders let you do. Be advised, they may charge a fee for that too.
Alternatives to HELOCs for medical bills
If you’re thinking about using your home’s equity to cover your medical debt, here are a few alternatives you might consider – which don’t involve putting your home on the line. Be sure to compare the terms and overall cost of HELOC borrowing against these other methods.
Payment plans
Many hospitals and medical providers offer patients a payment plan, allowing you to pay off your medical debt over time in installments. The monthly payment and repayment term can usually be negotiated. Many are interest-free, but make sure to ask about any charges or upfront fees.
Assistance programs
Medical assistance programs can be a great resource for many people with medical debt. Some organizations, like the The Healthwell Foundation and Patient Access Network (PAN) Foundation, provide grants that can help you pay off your debt more quickly. These groups can also connect you with resources to negotiate your medical debt or help you get more affordable health care. (See “Tips for paying off medical bills,” below.) Bear in mind these programs are often needs-based and you must meet eligibility requirements, usually related to income.
Bill negotiations
Getting a bill reduction might be as simple as calling your doctor’s billing department. Ultimately, doctors and hospitals want to get paid for their services, so they might be willing to relieve some of your debt if you’re unable to pay it off entirely. If you need help negotiating your medical bills, consider working with an advocacy group or non-profit that specializes in debt relief. However, some of these organizations might charge a fee for their services.
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