Home Equity Loan Calculator Bankrate Mortgage

Home Equity Loan Payment Formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Monthly Payment (PMT):

Total Interest:

Total Payment:

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1. What is a Home Equity Loan?

A home equity loan allows homeowners to borrow against their home's equity. These loans typically have fixed interest rates (7-9% p.a.) and fixed monthly payments over a set term (5-30 years). The loan amount is based on the difference between the home's value and the remaining mortgage balance.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

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: This formula accounts for compound interest over the life of the loan, calculating the fixed payment needed to pay off the loan in full by the end of the term.

3. Understanding Loan Payments

Details: Each payment includes both principal and interest. Early payments are mostly interest, while later payments apply more to principal. The calculator shows total interest paid over the life of the loan.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate (typically 7-9% for home equity loans), and loan term in years. Results show monthly payment, total interest, and total repayment amount.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between home equity loan and HELOC?
A: Home equity loans have fixed rates and lump-sum disbursement, while HELOCs have variable rates and work like credit cards.

Q2: How much can I borrow with a home equity loan?
A: Typically up to 80-85% of your home's value minus remaining mortgage, but lenders have varying requirements.

Q3: Are home equity loan rates fixed or variable?
A: Most home equity loans have fixed rates, unlike HELOCs which usually have variable rates.

Q4: What are the tax implications?
A: Interest may be deductible if used for home improvements (consult a tax professional).

Q5: How does this compare to refinancing?
A: Home equity loans keep your original mortgage intact while providing additional funds, whereas refinancing replaces your existing mortgage.