1. What is a Home Equity Loan?

A home equity loan allows homeowners to borrow against the equity in their property. It provides a lump sum payment with a fixed interest rate and repayment term, making monthly payments predictable.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Explanation: The formula accounts for both the principal repayment and interest charges over the loan term, calculating a fixed monthly payment.

3. Understanding Cost of Living Impact

Details: The calculator adds your monthly cost of living to the loan payment to show your total monthly financial obligation. This helps assess affordability considering all expenses.

4. Using the Calculator

Tips: Enter the loan amount, interest rate, loan term, and your estimated monthly living expenses. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does home equity loan differ from HELOC?
A: A home equity loan provides a lump sum with fixed payments, while a HELOC is a revolving credit line with variable rates.

Q2: What is considered a good interest rate?
A: Rates vary by market conditions and credit score, but typically 1-3% above current mortgage rates is common.

Q3: How does cost of living affect loan affordability?
A: Lenders typically want your total debt payments (including new loan) to be ≤36% of gross monthly income, minus living expenses.

Q4: Are there tax benefits to home equity loans?
A: Interest may be tax deductible if funds are used for home improvements (consult a tax professional).

Q5: What happens if I can't make payments?
A: Defaulting could lead to foreclosure since your home serves as collateral for the loan.