1. What is Home Equity Credit?

A home equity loan or line of credit (HELOC) allows homeowners to borrow against the equity in their home. The loan is secured by the property, typically offering lower interest rates than unsecured loans.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Explanation: This formula calculates the fixed monthly payment required to fully repay a loan over its term, including both principal and interest.

3. Understanding Loan Payments

Details: Each payment consists of both interest and principal. Early in the loan, most of the payment goes toward interest. Over time, more is applied to the principal.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, and loan term (in years or months). The calculator will show your estimated monthly payment, total payments, and total interest.

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 works like a credit card with a variable rate and revolving credit.

Q2: How much can I borrow with home equity?
A: Typically 80-85% of your home's value minus what you owe on your mortgage, but lenders have different requirements.

Q3: Are home equity loan payments tax deductible?
A: Interest may be deductible if used for home improvements, but tax laws change - consult a tax professional.

Q4: What's better: shorter or longer loan term?
A: Shorter terms mean higher payments but less total interest. Longer terms have lower payments but cost more overall.

Q5: How does credit score affect home equity loans?
A: Higher scores typically qualify for better interest rates. Scores below 620 may have difficulty qualifying.