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%

    Ready to run the numbers?

    Open Home Equity Loan Calculator