1. What is a Home Equity Loan?

A home equity loan allows homeowners to borrow against the equity in their property. It provides a lump sum payment with a fixed interest rate and repayment term, typically used for major expenses like home improvements or debt consolidation.

2. How Extra Payments 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)

Extra Payments: Additional amounts applied directly to principal, reducing both the loan term and total interest paid.

3. Benefits of Extra Payments

Details: Even small extra payments can significantly reduce the loan term and total interest. For example, adding $100/month to a $100,000 loan at 5% for 15 years can save thousands in interest and shorten the term by several years.

4. Using the Calculator

Tips: Enter the loan amount, interest rate, and term. Optionally add an extra monthly payment to see how it affects your loan. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do extra payments affect amortization?
A: Extra payments reduce principal faster, which decreases future interest calculations and shortens the loan term.

Q2: Are there prepayment penalties?
A: Some loans have prepayment penalties - check your loan terms before making extra payments.

Q3: Is it better to make extra payments or refinance?
A: Depends on rates and fees. Extra payments are flexible with no closing costs, while refinancing might offer lower rates.

Q4: How often should I make extra payments?
A: Consistency matters most. Monthly extra payments have the greatest impact, but even annual bonuses help.

Q5: Can I target specific months for extra payments?
A: This calculator assumes consistent extra payments. For lump sums, use a more detailed amortization calculator.