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

What you'll learn: The pros and cons of using a HELOC for medical bills and home care expenses.

 

EXPECTED READ TIME: 4.5 MINUTES

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May 24, 2024

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.

 

 

 

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Disclosures

*Prime Rate is 7.50% as of December 20, 2024. The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than 7.375% for primary residences and second homes.

  • Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
  • Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

  • Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than 7.875% for primary residences and second homes.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

  • Mobile homes
  • Co-ops or time-shares
  • Properties that are currently listed on the market for sale
  • Commercial property or property used for commercial purposes, even if a residence is part of the property
  • Undeveloped property (land only)
  • Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

  • Additional limitations may apply

Home Equity Line of Credit:

  • This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
  • If only minimum payments are made during the draw period, the loan balance will not decrease.
  • In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
  • In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
  • Property type of Condo has a maximum CLTV of 80%.
  • The maximum CLTV available is dependent on credit qualification.
  • Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

  • For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

APY = Annual Percentage Yield
APR = Annual Percentage Rate