1. What is a Home Equity Loan?

A home equity loan allows homeowners to borrow against the equity in their property. It provides a lump sum payment with fixed interest rates and regular 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 (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. Understanding Loan Payments

Details: Each payment consists of both interest and principal repayment. Early payments are mostly interest, while later payments apply more to principal.

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.

5. Frequently Asked Questions (FAQ)

Q1: How is the 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 prepayment penalties?
A: Some loans charge fees for early repayment. Check your loan terms before making extra payments.

Q4: 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.

Q5: What costs are not included in this calculation?
A: This doesn't include insurance, taxes, or any origination fees that may be part of your total monthly housing payment.