Question:

How can I calculate home equity loan payments?

Answer:

The calculation of home equity loan payments is similar to the calculation of any other fixed rate loan because the only difference between a home equity loan (HEL) and a regular loan is that the HEL is secured with your equity in your home.

Steps to Calculate Home Equity Loan Payments:

To calculate your home equity loan payments you have to first know the following:

  • The interest rate on the loan
  • The total amount of the loan
  • The payback period

Then you can calculate your monthly payments using the following formula:

M = P [ i(1 + i)n ] / [ (1 + i)n - 1], where:

  • M is the monthly payment
  • P is the Principal amount
  • n is the payback period in no. of months
  • i is the monthly interest rate

And that's it, you are done! M will be your monthly home equity loan payment.

Of course the calculation would be trickier if the loan were an interest-only loan. Then the monthly payments would be different in the early years and in the later years. Let's view an example of that case so that you'll have a better understanding.

Example of an Interest-only Home Equity Loan:

Consider an interest-only HEL of $150,000 at 9% interest rate. The payback period is 10 years and the interest-only period runs for 3 years.

The monthly payment for the interest-only 3 years would be:

M first 3 years = 9% * $150,000 / 12
M first 3 years = $1125

The monthly payment for the last 7 years would be calculated exactly like a regular HEL with payback period of 7 years. Using the equation mentioned above:

M last 7 years = $2413

So for the first 3 years the payment would be $1125 and for the last 7 years it would increase to $2413.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
Was this Mortgage QnA helpful?
Not at all
  • Currently 3/5 Stars
  • 1
  • 2
  • 3
  • 4
  • 5
Definitely
Add to this Answer

Mortgage QnA is not a common forum. We have special rules:

  • Post no questions here. To ask a question, click the Ask a Question link
  • We will not publish answers that include any form of advertising
  • Add your answer only if it will contrubute to the quality of this Mortgage QnA and help future readers
If you have trouble reading the code, click on the code itself to generate a new random code. Verification Code Above:
Bookmark and share this QnA: