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 repayment term, making monthly payments predictable.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (decimal)
• \( n \) — Loan term in months

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

3. Importance of Loan Calculation

Details: Accurate payment calculation helps borrowers understand their financial commitment, budget effectively, and compare different loan options.

4. Using the Calculator

Tips: Enter the loan amount in USD, monthly interest rate as a decimal (e.g., 0.005 for 0.5%), and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is monthly interest rate calculated from APR?
A: Divide the annual percentage rate (APR) by 12 (months). For example, 6% APR = 0.06/12 = 0.005 monthly rate.

Q2: 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 (Home Equity Line of Credit) works like a credit card with variable rates.

Q3: Are there closing costs for home equity loans?
A: Yes, typically 2-5% of the loan amount, similar to a primary mortgage.

Q4: How does loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid over the life of the loan.

Q5: Is interest on home equity loans tax deductible?
A: Under current U.S. tax law, interest may be deductible if used for home improvements (consult a tax professional).