Paying for Home Care Costs with a Home Equity Line of Credit (HELOC) 

If you are wondering what your options are for paying for medical bills, home health care, nursing home care, or assisted living care—you are not alone. The age 65-plus population in the U.S. is projected to grow from 56 million in 2020 to 73 million in 2030, so it is safe to say that the need for home health care services will only increase in the coming years. And, more and more, people prefer to opt for home care services—which may also include getting help with household chores, nursing services, and personal care—instead of assisted living facilities or nursing homes.

How do most people pay for home care services?

Medicare, Medicaid, and private insurance can help, but they may still fall short. Long-term care insurance can help address that gap. But most people who have home care these days pay for it out of pocket. Many patch together a care budget from more than one financial source, including:

• Annuities.

• Investments and savings.

• Life insurance policies that can be used for qualified home-care expenses through cash value or an accelerated death benefit.

• Borrowing, for example by taking out a home equity line of credit (HELOC).

How does a home equity line of credit (HELOC) work?

A home equity line of credit (HELOC) is a loan that is secured by the equity in your home. It allows you to borrow and repay as you go (similarly to a credit card), using your home as collateral. Here is how they typically work:

• You can borrow up to a specified percentage of your home’s equity.

• You can draw out as little or as much cash as you need, when you need it, often for up to 10 years.

• You pay interest only on the cash you use.

• As you repay your outstanding balance, the amount of available credit is replenished—much like a credit card.

A HELOC has two periods: the draw period and the repayment period.

• Draw period: A specified period (typically 10 years) during which you can access cash whenever you want it — up to a certain amount.

• Repayment period: A specified period (often 20 years) during which you begin making regular monthly payments of principal and interest. The rate is variable.

Can you use a HELOC for medical or home care expenses?

Yes, you can use a HELOC to pay medical bills, in fact, a HELOC can be a good source of cash to pay upfront for medical care.

The pros of using a HELOC for home health care expenses

• Lower interest rates. Typically, HELOCs offer lower interest rates than unsecured options, including unsecured credit cards and loans.

• Fewer fees. You can take out a HELOC as a safety net and only access the cash when and if you need it. And when you do, there will not be a fee to withdraw the money. Keep in mind that some lenders charge an annual fee (similar to a credit card), but overall you will typically pay fewer fees with a HELOC.

• Unlimited uses. This is great news if you imagine your care need changing over time, or if you may need to hire additional help for just one year.

• Borrow only what you need. You can borrow as little or as much as you need throughout your draw period (typically 10 years) up to your credit limit.

• Easy access to cash. So you do not have to worry about complicated phone calls or approvals when you should be focusing on your health.

• Flexible repayment options. You may be offered different options for paying back the amount you borrowed via your HELOC. 

The cons of using a HELOC for home health care expenses

• It is a risk to borrow against your home. Defaulting on a HELOC means that you could lose your home.

• Your repayment rate could increase. HELOCs have a variable rate during the payback period, so there is always a chance your interest rate could increase with market forces.

• You could “max out” your HELOC and still have expenses. Depending on what type of care you need to pay for, and how long you will need it, it is possible you could withdraw the maximum amount you’re approved to borrow—and still have more care expenses to pay for.

• If your home equity declines, you could end up owing more. It is possible that during the term of your HELOC your home could lose value. That could mean that you borrowed against equity that no longer exists. If that happens, when it comes time to sell your home, you will need to make up for that lost equity at closing. Most HELOCs have a clause that states a decline in property value can result in a freeze—or termination—of your HELOC.

The bottom line

If you have enough equity built up in your home, a home equity line of credit (HELOC) is one of several options available to help pay for medical bills, including home health care. It is important to do a little homework so you understand the exact costs and benefits before deciding if a HELOC is the right choice for you. You may want to seek guidance from a qualified financial advisor. They can provide personalized advice based on your specific situation and help you make informed decisions.