Home Equity Loan Calculator

Home Equity Loan Payment Formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Monthly Payment (PMT):

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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 (7-9% p.a.) and fixed repayment terms, making them predictable for budgeting.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Where:

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

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

3. Importance of Payment Calculation

Details: Calculating your exact monthly payment helps with budgeting and ensures you can comfortably afford the loan payments without financial strain.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate (typically 7-9%), 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 home equity loan rates fixed or variable?
A: Most home equity loans offer fixed rates, unlike HELOCs which typically have variable rates.

Q3: How is home equity calculated?
A: Home equity = Current property value - Outstanding mortgage balance.

Q4: What loan terms are typical?
A: Common terms are 5-15 years, though some lenders offer up to 30 years.

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