1. What is a Home Equity Loan?

A home equity loan allows homeowners to borrow against the equity in their home. These loans typically have fixed interest rates (7-9% p.a.) and fixed repayment terms, making them predictable for budgeting.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of monthly payments (years × 12)
• \( PMT \) — Monthly payment amount (USD)

Explanation: The formula calculates the fixed monthly payment required to fully repay the loan over its term, including interest.

3. Importance of Payment Calculation

Details: Accurate payment calculation helps borrowers understand affordability, compare loan offers, and plan their household budgets effectively.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate (typically 7-9%), and loan term in years (common terms are 5-30 years). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What are typical home equity loan rates?
A: Rates typically range from 7-9% p.a. as of 2024, depending on credit score, loan-to-value ratio, and market conditions.

Q2: How does this differ from a HELOC?
A: Home equity loans provide lump-sum funding with fixed rates, while HELOCs offer revolving credit with variable rates.

Q3: What loan terms are available?
A: Common terms are 5-30 years. Shorter terms have higher payments but lower total interest costs.

Q4: Are there closing costs?
A: Yes, home equity loans typically have closing costs (2-5% of loan amount) similar to primary mortgages.

Q5: What's the maximum loan-to-value ratio?
A: Most lenders allow borrowing up to 80-85% of your home's value minus existing mortgage balance.