1. What is a Home Equity Loan?

A home equity loan allows homeowners to borrow money using the equity in their property as collateral. It provides a lump sum payment with fixed interest rates and regular monthly payments over a set term.

2. How Does the Calculator Work?

The calculator uses the standard amortization formula:

Where:

• \( PMT \) — Monthly payment (GBP/month)
• \( P \) — Loan principal (GBP)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of months (years × 12)

Explanation: This formula calculates the fixed monthly payment required to fully repay the loan principal plus interest over the specified term.

3. Understanding the PMT Formula

Details: The PMT formula accounts for both principal repayment and interest charges, ensuring each payment reduces the loan balance while covering the interest accrued during that period.

4. Using the Calculator

Tips: Enter the loan amount in GBP, annual interest rate as a percentage, and loan term in years. Ensure all values are positive and within reasonable ranges for accurate results.

5. Frequently Asked Questions (FAQ)

Q1: What is home equity?
A: Home equity is the difference between your property's current market value and the outstanding mortgage balance.

Q2: What are typical loan terms in the UK?
A: Home equity loans in the UK typically range from 5-25 years, with loan amounts based on available equity (usually up to 85% LTV).

Q3: How does this differ from a remortgage?
A: A home equity loan is a separate loan alongside your mortgage, while remortgaging replaces your existing mortgage with a new one.

Q4: What costs should I consider?
A: Besides the monthly payment, consider arrangement fees, valuation fees, legal costs, and early repayment charges.

Q5: Is my home at risk?
A: Yes, failure to make payments could result in repossession, as your home serves as security for the loan.