Home Equity Loan Calculator
Calculate monthly payments and total interest on a fixed-rate home equity loan (second mortgage) based on your loan amount, rate, and term.
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How It Works
A home equity loan is a fixed-rate second mortgage that lets you borrow a lump sum against the equity in your home. Unlike a HELOC (which is a revolving line of credit with variable rates), a home equity loan has predictable fixed payments and a set repayment schedule, making it ideal for one-time expenses like renovations or debt consolidation.
The Formula
Variables
- M — Fixed monthly payment on the home equity loan
- P — Loan amount (principal borrowed)
- r — Monthly interest rate (annual rate / 12)
- n — Total number of monthly payments (term in years x 12)
Worked Example
For a $50,000 home equity loan at 8.5% for 15 years: r = 0.085/12 = 0.007083, n = 180. M = 50000 x [0.007083 x (1.007083)^180] / [(1.007083)^180 - 1] = $492.35/month. Total interest over 15 years: $38,623.
Practical Tips
- Home equity loan interest may be tax-deductible if the funds are used to buy, build, or substantially improve your home.
- Most lenders limit your combined loan-to-value (CLTV) to 80-85% of your home's value.
- Compare a home equity loan vs. HELOC: fixed rate and lump sum vs. variable rate and flexible draws.
- Shorter terms (5-10 years) have higher payments but significantly less total interest.
- Your home is collateral — defaulting on a home equity loan can lead to foreclosure.
Frequently Asked Questions
What is the difference between a home equity loan and a HELOC?
A home equity loan gives you a lump sum at a fixed interest rate with fixed monthly payments. A HELOC is a revolving line of credit with a variable rate — you draw funds as needed during a draw period, then repay during a repayment period. Home equity loans are better for one-time expenses; HELOCs offer more flexibility.
How much equity do I need for a home equity loan?
Most lenders require at least 15-20% equity in your home after accounting for both your first mortgage and the new loan. For example, if your home is worth $400,000, your combined loans typically cannot exceed $320,000-$340,000.
Is home equity loan interest tax deductible?
Under current tax law, interest on home equity loans is deductible if the loan proceeds are used to buy, build, or substantially improve the home securing the loan. Interest on loans used for other purposes (debt consolidation, vacations) is generally not deductible.
What are typical home equity loan rates?
Home equity loan rates are typically 1-3% higher than first mortgage rates because the lender is in second lien position. Rates vary based on credit score, LTV ratio, loan amount, and term. Excellent credit borrowers get the best rates.