1. What is a Home Equity Loan?

A home equity loan allows homeowners to borrow against the equity in their property. These loans typically have fixed interest rates (usually 7-9% p.a.) and fixed monthly payments over the loan term.

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 both principal and interest.

3. Importance of Payment Calculation

Details: Understanding your exact monthly payment helps with budgeting and ensures you can comfortably afford the loan payments without financial strain.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate (typically 7-9% for home equity loans), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between home equity loan and HELOC?
A: A home equity loan provides a lump sum with fixed payments, while a HELOC (Home Equity Line of Credit) works like a credit card with variable rates.

Q2: Are home equity loan payments tax deductible?
A: Interest may be deductible if used for home improvements, but tax laws vary. Consult a tax professional.

Q3: What loan terms are typical for home equity loans?
A: Most home equity loans have terms between 5-30 years, with 10-15 years being most common.

Q4: How does credit score affect home equity loan rates?
A: Higher credit scores typically qualify for lower interest rates, potentially saving thousands over the loan term.

Q5: Can I pay off a home equity loan early?
A: Most allow early repayment, but check for prepayment penalties which could reduce savings from early payoff.