1. What is a Home Equity Loan?

A home equity loan allows homeowners to borrow against the equity in their property. It's a type of second mortgage that 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 amount
• \( P \) — Loan principal (total amount borrowed)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of monthly payments (years × 12)

Explanation: This formula calculates the fixed monthly payment required to fully pay off the loan (principal + interest) over the specified term.

3. Understanding Monthly Payments

Details: Each monthly payment consists of both principal and interest. Early in the loan term, payments are mostly interest; later payments apply more toward principal reduction.

4. Using the Calculator

Tips: Enter the loan amount in dollars, annual interest rate as a percentage (e.g., 5.25 for 5.25%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between home equity loan and HELOC?
A: Home equity loans provide a lump sum with fixed payments, while HELOCs work like credit cards with variable rates and flexible borrowing.

Q2: How much equity can I borrow?
A: Typically 80-85% of your home's value minus your current mortgage balance, but lenders have specific requirements.

Q3: Are there closing costs on home equity loans?
A: Yes, similar to first mortgages, including appraisal fees, title search, and origination fees (typically 2-5% of loan amount).

Q4: What happens if I sell my home?
A: The home equity loan must be paid off from the sale proceeds, just like your primary mortgage.

Q5: Can I pay off my home equity loan early?
A: Most allow early repayment, but check for prepayment penalties which might apply in the first few years.