1. What is a Home Equity Loan?

A home equity loan is a type of loan where the borrower uses the equity of their home as collateral. The loan amount is based on the difference between the home's current market value and the homeowner's mortgage balance due.

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 (term in months)

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

3. Importance of Payment Calculation

Details: Understanding your monthly payment helps in budgeting and ensures you can comfortably afford the loan payments without financial strain.

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 then by 100 to convert from percentage to decimal.

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 home equity loan payments tax deductible?
A: In some cases, interest may be deductible if used for home improvements. Consult a tax professional.

Q4: What happens if I can't make payments?
A: Defaulting could lead to foreclosure since your home serves as collateral.

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