1. What is a Home Equity Loan?

A home equity loan allows homeowners to borrow against the equity in their home. It provides a lump sum payment with fixed interest rates and regular monthly payments over a set 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 (term in years × 12)
• \( PMT \) — Monthly payment amount (USD)

Explanation: This formula accounts for both principal and interest payments over the life of the loan.

3. Importance of Payment Calculation

Details: Understanding your monthly payment helps with budgeting and ensures the loan is affordable before committing to it.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage, and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is this different from a 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: What's included in the monthly payment?
A: This calculates principal and interest only. Your actual payment may include taxes and insurance if escrowed.

Q3: How does interest rate affect payments?
A: Higher rates increase monthly payments significantly. A 1% rate difference can change payments by $50-$100 per month on a $100,000 loan.

Q4: Are there prepayment penalties?
A: Some loans charge fees for early payoff. Check your loan terms before making extra payments.

Q5: What loan terms are typical?
A: Home equity loans commonly have 5-30 year terms, with 10-15 years being most common.