1. What is a Home Equity Loan?

A home equity loan allows homeowners to borrow against the equity in their property. These loans typically have fixed interest rates (usually 7-9% p.a.) and fixed repayment terms, making them different from home equity lines of credit (HELOCs).

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Explanation: The formula accounts for both principal repayment and interest charges over the loan term.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and ensures you can comfortably afford the loan. It also helps compare different loan offers.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate (typically 7-9% for home equity loans), and loan term in years (commonly 5-30 years).

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 work like credit cards with variable rates and draw periods.

Q2: Are home equity loan rates fixed?
A: Typically yes, unlike HELOCs which usually have variable rates. Rates are generally higher than primary mortgages.

Q3: What loan terms are available?
A: Terms usually range from 5-30 years, with 10-15 years being most common for home equity loans.

Q4: How much can I borrow?
A: Lenders typically allow borrowing up to 80-85% of your home's value minus any mortgage balance.

Q5: Are there tax benefits?
A: Interest may be tax-deductible if used for home improvements (consult a tax professional for your situation).