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 a fixed interest rate and fixed 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: The formula accounts for both principal repayment and interest charges over the life of the loan.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and ensures the loan is affordable. It also helps compare different loan options.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage (e.g., 5.25), 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 is a revolving credit line with variable rates.

Q2: Are there closing costs on home equity loans?
A: Yes, typically 2-5% of the loan amount, though some lenders offer no-closing-cost options.

Q3: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest paid over the life of the loan.

Q4: What's a good interest rate for a home equity loan?
A: Rates vary but are typically 0.5-2% higher than current mortgage rates, depending on credit score and LTV.

Q5: Are home equity loan payments tax deductible?
A: Interest may be deductible if funds are used for home improvements (consult a tax professional).