1. What is a Home Equity Loan?

A home equity loan allows homeowners to borrow against the equity in their home. The loan is typically paid back in fixed monthly installments over a set term, with interest rates that are generally lower than other types of loans because the home serves as collateral.

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)
• \( n \) — Number of monthly payments

Explanation: This formula calculates the fixed monthly payment required to fully amortize (pay off) the loan over its term, including both principal and interest.

3. Importance of Accurate Calculation

Details: Understanding your exact monthly payment helps with budgeting and ensures you can comfortably afford the loan payments without risking your home equity.

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 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 is a revolving credit line 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: What loan terms are typical?
A: Most home equity loans have terms of 5-30 years (60-360 months).

Q5: Is the interest tax deductible?
A: As of 2025, interest may be deductible if used for home improvements (consult a tax professional).