1. What is a Home Equity Loan?

A home equity loan allows homeowners to borrow against the equity in their home. It provides a lump sum payment with a fixed interest rate and fixed monthly payments over a set term.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Explanation: This formula accounts for both principal and interest payments over the life of the loan.

3. Understanding Loan Payments

Details: Each payment includes both principal and interest. Early in the loan, more of each payment goes toward interest; later, more goes toward principal.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, and loan term in years. The calculator will show your estimated monthly payment.

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: How much can I borrow with a home equity loan?
A: Typically 80-85% of your home's value minus what you owe on your mortgage.

Q3: Are home equity loan payments tax deductible?
A: Interest may be deductible if used for home improvements (consult a tax advisor).

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

Q5: Can I pay off a home equity loan early?
A: Yes, but check for prepayment penalties in your loan terms.