Unlock Your Home's Potential with a Home Equity Loan
Our Home Equity Loan Calculator helps you estimate payments and understand how to leverage your home's value.
What is a Home Equity Loan?
A home equity loan is a type of loan where you use the equity in your home as collateral. Equity is the difference between your home's current market value and the amount you owe on your mortgage. These loans typically offer a lump sum of cash with a fixed interest rate and fixed monthly payments over a set period.
Common uses for home equity loans include home renovations, debt consolidation, education expenses, or other significant expenditures.
How a Home Equity Loan Payment is Calculated
The calculation for a home equity loan is similar to that of a traditional loan, using the principal loan amount, interest rate, and loan tenure. The formula for the monthly payment (EMI) is:
$$M = P \times \frac{i(1 + i)^n}{(1 + i)^n - 1}$$
Where:
- $M$ = Monthly Loan Payment
- $P$ = Principal Loan Amount (the amount borrowed)
- $i$ = Monthly Interest Rate (Annual Rate / 12 / 100)
- $n$ = Total Number of Payments (Loan Tenure in Years * 12)
Understanding the Amortization Schedule
An amortization schedule provides a detailed breakdown of each payment made towards your home equity loan. It shows how much of each monthly payment goes towards reducing the principal balance and how much goes towards paying interest.
Early in the loan term, a larger portion of your payment goes to interest, while later in the term, more goes towards the principal. This schedule helps you see your loan balance decrease over time and understand the total cost of borrowing.