Here’s What to Consider Before Using a HELOC to Pay for Medical Expenses

An image to accompany a story about using a HELOC to pay for medical expenses Getty Images
We want to help you make more informed decisions. Some links on this page — clearly marked — may take you to a partner website and may result in us earning a referral commission. For more information, see How We Make Money.

When it comes to medical bills in the U.S., millions of people struggle to pay for their healthcare needs. 

In 2017, 19% of U.S. households carried medical debt, according to a survey by the U.S. Census Bureau. Among those who had medical debt, the median amount owed was $2,000. According to the same survey, households with Black or Hispanic household members were disproportionately more likely to have medical debt compared to households with White non-Hispanic members and households with Asian members. 

If you have an outstanding medical bill or are planning for an upcoming procedure, tapping into your home’s equity for cash using a home equity line of credit (HELOC) can be appealing. Currently, HELOC interest rates are quite low, making them a relatively inexpensive financing option. But lenders have gotten stricter about originating HELOCs, making them harder to come by, and there are other significant drawbacks to keep in mind. 

Here’s what you need to know about using a HELOC to pay for medical expenses, and some tips to avoid medical debt as a whole. 

How Does a HELOC Work?

For people in need of cash, HELOCs can be an accessible option for affordable financing. “HELOCs are a tool that people like to use because there’s a stash of cash waiting for them to tap into,” says Sarah Catherine Gutierrez, a certified financial planner (CFP) and CEO of Arkansas-based financial planning firm, Aptus Financial. 

A HELOC lets you borrow against the equity you’ve built up in your home and pay off the debt over an extended period, typically around 20 years. With a HELOC, you can usually borrow up to 85% of your home’s equity — the appraised value of your home minus what you owe on your existing mortgage. 

Like credit cards, HELOCs are revolving lines of credit. Once approved for a HELOC, you can continuously borrow as much as you need, whenever you need it, during the draw period. For most HELOCs, the draw period lasts 10 years. Some HELOCs, known as interest-only HELOCs, only require you to make payments on the accrued interest and not the principal balance during the draw period. 

Pro Tip

If you decide to take out a HELOC for medical expenses, shop around and compare offers from several lenders. Fees can vary by lender, so look out for origination fees and closing costs. Closing costs can be 2% to 5% of your total loan cost.

Once the draw period ends, the HELOC enters the repayment period, where you repay both the principal and any accrued interest. The repayment period typically lasts from 15 to 20 years. You only make payments on the amount you used rather than the entire limit you were approved for when you applied.

HELOCs are secured loans, with your home serving as collateral. Because they’re secured, they may have lower interest rates than other forms of financing, such as unsecured personal loans. “Even though [a HELOC] usually has a variable interest rate, they’ve historically been pretty low-interest lines of credit,” says Gutierrez. 

Pros and Cons of Using a HELOC for Medical Expenses

If you’re facing a major medical expense, a HELOC can be a viable financing option if you own a home worth more than you currently owe on the mortgage. But before you apply, you should carefully weigh the benefits and drawbacks of using a HELOC for medical expenses:

Pros

  • Typically lower interest rates than personal loans or credit cards

  • Repayment term as long as 20 years

  • Continual access to line of credit

Cons

  • Availability may be limited as lenders tighten borrower requirements or stop offering HELOCs altogether

  • Borrowers risk over-borrowing

  • You risk losing your home if you default on the loan

With low interest rates and repayment terms as long as 20 years, HELOCs can be handy. However, experts say you can’t always count on HELOCs as a replacement for an emergency fund.

”I think they’re too precarious,” warns Gutierrez. “When it’s a collective emergency, and we’re all experiencing the same hardships, it affects the housing market and mortgage lenders. Then you see lots of banks freezing HELOCs at the same time,” she says.

That happened during the COVID-19 pandemic, when major banks like Wells Fargo and Chase suspended originations of new HELOCs. Other banks, such as Bank of America, instituted stricter credit requirements for borrowers, restricting who could qualify for a HELOC during the pandemic. 

If you manage to get a HELOC, there’s also the risk of overspending. Once you have access to the cash flow from a HELOC, the idea of spending some extra money on home improvements or other expenses may seem attractive. 

But Gutierrez warns against this kind of thinking. “It’s probably my number one reason to not use a HELOC for medical debt,” says Gutierrez. “The potential for the temptation to spend more, because it does feel so easy, and that payment, because it’s over such a long period, just seems so low. I think behaviorally, people can fall into that trap,” she says. 

Since the bank can foreclose on your house if you fall behind on payments, overspending on a HELOC arguably comes with more risk than even high-interest credit card debt. You need to be extra vigilant with this kind of debt that puts your home on the line. 

Most Expensive Common Medical Expenses

Medical expenses can be extraordinarily expensive. Even if you have health insurance, you could still be on the hook for thousands of dollars due to coinsurance and high out-of-pocket limits. For the 2021 plan year, healthcare plans sold through Healthcare.gov had out-of-pocket maximums as high as $8,550 for an individual and $17,100 for a family. If you have a plan with that limit, that’s how much you’d potentially need to pay out-of-pocket for your medical care. 

If you don’t have health insurance at all, the cost for medical care could be even higher. Here are the typical costs of some common medical procedures and treatments without insurance, according to PeopleKeep, a developer of employee health benefits software:

  • Broken leg: If you break your leg and need to get a cast, it could cost $863. 
  • Hospital stay: If you need to stay in a hospital overnight for recovery or observation, expect to spend around $11,700. 
  • Pregnancy and Delivery: If you are expecting a baby, prepare for a large bill. A normal pregnancy and delivery costs $14,847. 
  • Kidney Stone: Kidney stones are relatively common. They occur when a small, hard deposit develops in the kidneys. On average, the treatment for kidney stones totals $28,817. 
  • Appendix Removal: If you develop appendicitis, doctors will have to remove your appendix with an appendectomy. On average, the procedure costs $17,581. 

Health insurance can mitigate the above costs to a certain extent. But if you’re uninsured or if your insurance plan comes with high out-of-pocket costs, getting the treatment you need could come with a hefty bill. In that case, a HELOC could help you cover these charges, but there may be better options available. 

How to Avoid Medical Debt: 4 Tips

If you’d like to avoid taking on debt for medical expenses, whether through a HELOC, personal loan, credit card, or any other type of financing, here are some ways to keep your costs down: 

1. Double Check Your Insurance Coverage

In many cases, your insurance will cover the majority of your costs — if you do your homework ahead of time. “The first thing to do is make sure that, if you need preauthorization, you get preauthorization and you get it at the highest benefit level to which you are entitled, and you get it in writing,” says Dr. R. Ruth Linden, Ph.D., president of Tree of Life Health Advocates. “Always double or triple-check that your doctors are in-network, your hospital is in-network, and your provider is in-network,” she adds. 

Contact your insurer directly to ensure your providers and treatments are covered. “Check in advance what costs you are going to be responsible for. It makes a huge difference for planning purposes,” says Linden. 

2. Use Your Health Savings Account (HSA)

If you have a high-deductible health plan, you likely have access to an HSA. HSAs allow you to contribute money on a pre-tax basis to save for medical expenses. Stashing money away into an HSA can help you pay for any necessary or elective treatments in cash, without the need for debt. And, you can roll over the money you contribute to the next year to cover future medical costs. 

“HSAs are an interesting tool because they’re not ‘use it or lose it’ like a flexible spending account (FSA),” says Gutierrez.

HSAs also allow you to invest your contributions, potentially growing your money over time. Though it should be noted that all investments, even comparatively “safe” ones like index funds, carry some degree of risk. If you know you have an upcoming medical expense you’d like to use your HSA funds for, we recommend keeping the money in your account as cash rather than investing it.

3. Save for Future Care

Even if you don’t have access to an HSA, it’s a good idea to tuck money away into a dedicated savings account to cover emergency expenses. Or, if you have a planned elective procedure, start saving to cover the cost. 

Picking up a side hustle, setting up automatic deposits into a separate savings account, and trimming your current budget are all ways to save up for medical expenses. Then, store that money in an FDIC-insured high-yield savings account so that it can grow over time with no risk. 

4. File an Appeal

If your insurance company denies your claim, leaving you on the hook with a hefty medical bill, you may be able to appeal the denial. In some cases, your claim may have been wrongfully denied due to a mistake. “It comes down to figuring out why these claims are not being processed correctly,” says Linden. “Sometimes claims are processed at the wrong level of benefit. Sometimes an out-of-network provider is used, and then a case has to be made to process the claim at the in-network benefit level.”

If you need to file an appeal, work with your healthcare provider or treatment team to gather the necessary documentation and submit it to your insurance.

 It can also be helpful to hire a healthcare advocate to work on your behalf. The Patient Advocate Foundation is a non-profit organization that provides free assistance to patients with serious and chronic health conditions. The AdvoConnection Directory is another resource you can use to find healthcare advocates near you. 

5. Negotiate With the Hospital or Healthcare Provider

If you’ve received medical care and receive a bill from the hospital or healthcare provider that you can’t afford to repay, don’t panic. Depending on your circumstances, you may be able to negotiate the bill with the hospital or your healthcare provider. In some cases, you could enter into a payment plan and spread the payments over several years, or the hospital or healthcare provider may waive some or all of the cost. “100% forgiveness is possible, but it depends on the provider, the client’s income, the person’s employment status, their age, and lots of other factors,” says Linden. It’s worth contacting your healthcare provider to see what help they can offer you.