1. What is a Home Equity Loan?

A home equity loan is a type of loan where the borrower uses the equity of their home as collateral. These loans typically have fixed interest rates and fixed monthly payments over a set 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 payments (loan term in years × 12)
• \( PMT \) — Monthly payment amount (USD)

Explanation: The formula calculates the fixed monthly payment required to fully amortize the loan over its term.

3. Understanding the Payment Schedule

Details: The payment schedule shows how each payment is split between principal and interest. Early payments consist mostly of interest, while later payments apply more to principal.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage, and loan term in years. The calculator will show your monthly payment and full amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between home equity loans and HELOCs?
A: Home equity loans provide a lump sum with fixed payments, while HELOCs (Home Equity Lines of Credit) work like credit cards with variable rates.

Q2: Are there closing costs for home equity loans?
A: Yes, typically 2-5% of the loan amount, though some lenders offer no-closing-cost options with slightly higher rates.

Q3: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest paid. Longer terms reduce monthly payments but increase total interest.

Q4: Can I pay extra on my home equity loan?
A: Most allow extra payments, but check for prepayment penalties. Extra payments reduce principal faster and save on interest.

Q5: Are home equity loan interest payments tax deductible?
A: Under current US tax law, interest is deductible if used for home improvements (consult a tax professional for your situation).