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 fixed interest rates and repayment terms, 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 Payment 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) and convert to decimal (e.g., 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, including appraisal fees, title search, and origination fees.

Q4: What loan terms are typical?
A: Most home equity loans have 5-30 year terms, with 10-15 years being most common.

Q5: Is interest tax deductible?
A: Interest may be deductible if funds are used for home improvements (consult a tax professional).