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Can I use a HELOC to pay for medical expenses?

How and when to use a home equity line to pay for medical expenses

Key Overview: 

  • A HELOC can be used to pay for planned medical expenses and existing medical bills

  • HELOC funds can be used to pay for procedures, surgeries, medications, hospital stays, prescriptions, medical equipment and devices, copays, home help nursing, and other medical costs

  • Advantages of using home equity over other forms of financing to cover medical costs include low interest rates, flexible repayment terms, and flexible borrowing terms

  • Disadvantages include the risk of a foreclosure on your home

Can you use a HELOC for medical expenses?

Yes, a HELOC, or home equity line of credit, can be used to pay medical expenses. Sometimes it's possible to foresee the cost of surgeries or illness-related medical treatments and to plan ahead. Often, unforeseen emergencies can leave you with an amount of medical debt that feels overwhelming and catches you off guard. In either situation, a HELOC can be a useful financial tool for helping you pay for or pay off medical bills. Available low interest rates and flexible repayment schedules make it a good choice to consider when examining how to cover costs not otherwise covered by your health insurance. 

How does a HELOC work?

A home equity line of credit (HELOC) is a form of revolving credit that allows homeowners to borrow against the equity in their home. Typically, this type of loan offers flexibility around both borrowing and repaying funds, which can be ideal for those burdened by medical bills who want to manage their payments more closely.

The amount of money you can borrow will depend on how much equity you have in your home. Equity is the portion of the home that you own in comparison to what you owe the bank on your primary mortgage. Another way to think of it is the current value of your property minus what you owe on your mortgage (or mortgages). Most lenders will lend 80-90% of what you have in home equity, with terms that vary depending on your credit score and income-to-debt ratio.

Depending on the lender, there can be a minimum or maximum withdrawal requirement after your account is opened. Usually, access to these funds can be gained through an online transfer, writing a check, or using a credit card connected to your account.

When you receive a HELOC, it will go through two phases – the draw period and the repayment period. During the draw period, usually the first 10 years of the loan, you are allowed to make use of the loan as needed for up to a certain amount (your credit limit), with interest only charged on what has been used during any given statement period. You can choose to pay down the principal and interest during this time or are able to make interest-only payments. 

During the repayment period, usually the 10-20 years following the draw period, you can no longer withdraw funds against your credit line and are required to make payments on both the principal and interest. This phase usually includes higher minimum monthly payments than during the draw period to satisfy any loan obligations before its expiration date.

Pros and cons of using a HELOC to pay medical bills

A home equity line can provide you with the cash you need to pay for medical expenses upfront or can serve as an alternative to high-interest borrowing options to pay off existing medical bills. For some, using a HELOC as a low-interest medical loan is the best option. With all forms of lending, it is important to research the exact costs and benefits before deciding if it is the right choice for your needs.

Advantages 

  1. Borrowing flexibility: A home equity line of credit (HELOC) is a great option if you’re looking for access to funds over an extended period of time. A HELOC allows you to borrow only what is needed during the draw period, so you don’t have to worry about borrowing too much or too little. You can use funds from the HELOC on expenses such as medical bills as they come up and will only ever pay interest on what you use.

  2. Low interest rates: The interest rate for a HELOC typically tends to be lower than what you’d find with a credit card or personal loan. This is because it is secured by your home equity and poses less risk for lenders than unsecured debt.

  3. Repayment flexibility: The timeline for the repayment of a HELOC also tends to be quite flexible, giving borrowers some freedom in determining how long it will take them to pay off their home equity line of credit. Typically, repayment plans last 20-30 years, and during the first 10 years borrowers are only required to make small payments towards the interest, although they can opt to put more down towards their principal if they choose. The additional money paid down during this initial period still remains available and can be used in case unexpected expenses arise that require extra funds.

  4. Spending flexibility: Because there are no restrictions on how HELOC funds can be used, you have the flexibility to pay for the medical expenses that you need. This could be a combination of in-patient care, outpatient services, medical devices, copays, prescriptions, and home help, depending on your situation. 

Disadvantages

  1. Foreclosure risk: The biggest drawback of a HELOC is the risk of losing your home to foreclosure if you don’t make timely payments. Medical expenses can be difficult to plan for, which means you may end up paying more in the future than you would have initially anticipated. This is especially true if you are only able to make minimum monthly payments on interest during the initial draw period of the loan.

  2. You still have debt: Even though it might seem like replacing unsecured debt with secured debt is a good idea, remember that you still owe money and will one day need to pay back what you borrowed. This could result in having to simultaneously make mortgage and HELOC payments at the same time, particularly if the value of your home falls and creates negative equity for you.

Medical costs and avoiding medical debt

Medical bills can be overwhelming for many people, and it is important to understand the various ways to reduce medical debt. A short hospital stay can quickly end up costing you over $15,000 and treatments for chronic illnesses can add up quickly.  Needing multiple corrective procedures, ongoing illness, expensive prescriptions, and costly home aid devices can lead to immense debt.

One of the best methods for reducing medical debt is to review every bill carefully and look for any errors or discrepancies that may exist. Your provider should provide an itemized list of charges so you can ensure accuracy is maintained. Mistakes happen, and it pays to be diligently thorough in reviewing every single line item provided by your provider.

Furthermore, don’t forget that your provider has its own billing policy that should be followed as payment plans must usually be approved before the bill gets too old. Inquire about payment options shortly after receiving the bill in order to avoid any potential past-due notices or penalties due on late payments. Remember – you don’t need to assume that you can just pay whatever amount comes your way, so ask beforehand and gain a clear understanding of what’s expected from you when paying off medical debt.

Should you use a HELOC to reduce medical debt?

The bottom line is that taking on a home equity line of credit (HELOC) is one of several options that can be used to pay off medical debt. This type of secured loan takes your home as collateral, which means if you fail to make payments, you may lose the property. Before you make this decision, try other methods such as discussing payment plans or hiring a medical bill advocate.

Do you qualify?

Before you can apply for a HELOC, you must have equity in your home, as well as a strong credit score. The better your score, the more money you will be able to access. The amount of loan you are able to access will depend upon the amount of equity you have. Of course, you will need to have evidence of your income, employment, ability to repay, credit history, and a record of any existing debt.

You will also need to determine the value of your property as part of your application. We use an Automated Valuation Model (AVM), which considers public data records, recent sales of similar properties, and historical house price trends.

Figure out your HELOC

Figure makes it easy to get a HELOC and our application process is entirely online, so you can complete the process and get approval within minutes. If approved, you can access much-needed funds in days. Of course, it is worth noting that approval for a loan is subject to verification of income and employment. 

To Figure out your HELOC, get started and fill out your application today.



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