1. What is the Home Equity Payment Formula?

The home equity payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. It's based on the loan amount, interest rate, and loan duration.

2. How Does the Calculator Work?

The calculator uses the standard amortization formula:

Where:

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

Explanation: The formula accounts for both principal and interest payments, with more interest paid earlier in the loan term.

3. Importance of Payment Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It also shows the true cost of borrowing through total interest calculations.

4. Using the Calculator

Tips: Enter the loan amount in dollars, annual interest rate as a percentage (e.g., 5.25), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this include property taxes and insurance?
A: No, this calculates only principal and interest. Your actual payment may include escrow for taxes and insurance.

Q2: How does extra payment affect the loan?
A: Extra payments reduce principal faster, saving interest and potentially shortening the loan term.

Q3: What's the difference between APR and interest rate?
A: APR includes fees and other loan costs, while the interest rate is just the cost of borrowing principal.

Q4: Why are early payments mostly interest?
A: With amortization, interest is calculated on the outstanding balance, which is highest at the beginning.

Q5: Can I change the payment frequency?
A: This calculator assumes monthly payments. Biweekly payments would require a different calculation.