1. What is a Home Equity Loan?

A home equity loan allows homeowners to borrow against the equity in their home. These loans typically have fixed interest rates and set repayment terms, making monthly payments predictable.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

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

3. Understanding the Payment Formula

Details: The formula accounts for the time value of money, calculating how much needs to be paid each month to pay off the loan exactly at the end of the term.

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 do I convert APR to monthly rate?
A: Divide the annual percentage rate (APR) by 12 (months) and convert from percentage 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 home equity loan payments tax deductible?
A: In some countries, interest may be deductible if used for home improvements. Consult a tax professional for advice.

Q4: What happens if I pay extra each month?
A: Additional payments reduce the principal faster, potentially saving interest and shortening the loan term.

Q5: How does loan term affect payments?
A: Longer terms mean lower monthly payments but more total interest paid over the life of the loan.