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 accounts for both principal repayment and interest charges over the loan term.

3. Understanding Loan Payments

Details: Each payment includes both interest and principal. Early payments are mostly interest, while later payments apply more to principal.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate (typically 7-9% for home equity loans), and loan term in years. The calculator will show your estimated monthly payment and total loan cost.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between home equity loan and HELOC?
A: Home equity loans provide a lump sum with fixed payments, while HELOCs are revolving credit lines with variable rates.

Q2: Are home equity loan rates fixed or variable?
A: Most home equity loans have fixed rates, unlike HELOCs which typically have variable rates.

Q3: What are typical loan terms?
A: Home equity loans usually have 5-30 year terms, with 10-15 years being most common.

Q4: Are there closing costs on home equity loans?
A: Yes, typically 2-5% of the loan amount, similar to a primary mortgage.

Q5: How much can I borrow with a home equity loan?
A: Most lenders allow borrowing up to 80-85% of your home's value minus what you owe.