1. What is a Home Equity Loan?

A home equity loan allows homeowners to borrow against the equity in their home. These loans typically have fixed interest rates (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 a loan over its term, including interest.

3. Understanding Loan Payments

Details: Each payment includes both principal and interest. Early in the loan term, payments are mostly interest. As the loan matures, more of each payment goes toward principal.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate (typically 7-9%), and loan term in years (common terms are 5-30 years).

5. Frequently Asked Questions (FAQ)

Q1: What are typical home equity loan rates?
A: Rates typically range from 7-9% p.a. as of 2023, depending on credit score, loan-to-value ratio, and market conditions.

Q2: How does this differ from a HELOC?
A: A home equity loan provides a lump sum with fixed payments, while a HELOC is a revolving credit line with variable rates.

Q3: Are there closing costs?
A: Yes, home equity loans typically have closing costs (2-5% of loan amount) similar to primary mortgages.

Q4: What's the maximum loan amount?
A: Most lenders allow borrowing up to 80-85% of your home's equity (value minus existing mortgage).

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