Home Equity Loan Calculator Formula

Understand the math behind the home equity loan calculator. Each variable explained with a worked example.

Use the Home Equity Loan Calculator

Formulas Used

Monthly Payment

payment = monthly_payment

Total Amount Paid

total_paid = monthly_payment * n

Total Interest Paid

total_interest = monthly_payment * n - loan_amount

Interest-to-Principal Ratio

interest_to_principal = (monthly_payment * n - loan_amount) / loan_amount * 100

Variables

VariableDescriptionDefault
loan_amountLoan Amount(USD)75000
interest_rateFixed Interest Rate(%)8
loan_term_yearsLoan Term(years)15
rDerived value= interest_rate / 100 / 12calculated
nDerived value= loan_term_years * 12calculated
monthly_paymentDerived value= r > 0 ? loan_amount * r * pow(1 + r, n) / (pow(1 + r, n) - 1) : loan_amount / ncalculated

How It Works

Home Equity Loan Basics

A home equity loan provides a lump sum at a fixed interest rate, repaid in equal monthly installments over a set term. Your home serves as collateral.

Payment Formula

Monthly Payment = P x r x (1+r)^n / ((1+r)^n - 1)

Where P is the loan amount, r is the monthly interest rate, and n is the total number of payments.

Typical Terms

  • Fixed rates, usually 1-2% higher than first mortgage rates
  • Terms from 5 to 30 years
  • Can borrow up to 80-85% of your home equity
  • Interest may be tax deductible if used for home improvements

    • Worked Example

    A $75,000 home equity loan at 8% fixed for 15 years.

    loan_amount = 75000interest_rate = 8loan_term_years = 15
    1. 01Monthly rate: 8% / 12 = 0.6667%
    2. 02Number of payments: 15 x 12 = 180
    3. 03Monthly payment: $75,000 x 0.006667 x (1.006667)^180 / ((1.006667)^180 - 1) = $716.74
    4. 04Total paid: $716.74 x 180 = $129,013
    5. 05Total interest: $129,013 - $75,000 = $54,013
    6. 06Interest-to-principal ratio: $54,013 / $75,000 = 72.0%

    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 rate with fixed monthly payments. A HELOC is a revolving line of credit with a variable rate. Home equity loans are better for one-time expenses; HELOCs are better for ongoing or uncertain costs.

    How much can I borrow with a home equity loan?

    Most lenders allow you to borrow up to 80% of your home equity, though some go up to 85% or even 90%. The maximum is typically calculated as (Home Value x 0.80) minus your existing mortgage balance.

    What happens if I cannot make the payments?

    Since your home is collateral, defaulting on a home equity loan can lead to foreclosure. If you are struggling with payments, contact your lender about modification options before missing payments.

    Ready to run the numbers?

    Open Home Equity Loan Calculator