Simple Home Equity Loan Calculator

Home Equity Loan Payment Formula:

\[ Payment = P \times \frac{r (1 + r)^n}{(1 + r)^n - 1} \]

Monthly Payment:

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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 a fixed interest rate and regular monthly payments over a set term.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

\[ Payment = P \times \frac{r (1 + r)^n}{(1 + r)^n - 1} \]

Where:

\( P \) — Principal loan 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. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and ensures you can comfortably afford the loan before committing.

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 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 fees not included in this calculation?
A: Yes, this doesn't account for origination fees, closing costs, or potential mortgage insurance.

Q4: How does loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid over the life of the loan.

Q5: Can I pay extra to reduce the term?
A: Many loans allow additional payments, but check for prepayment penalties.