How to Calculate HELOC Loan Payments

Homeowners have plenty of options to fund certain projects like remodeling or building additions to their home. Second mortgages are usually used to fund these types of projects as well as other types of lines of credit. One popular way to fund remodeling or building additions to a home is a HELOC loan. HELOC stands for “home equity line credit”, and it’s a type of loan that made on the equity that is associated with the home. If a homeowner has a certain amount of equity on their home, they have the option to apply for a HELOC loan.

Before a homeowner decides whether or not to take out a HELOC loan on their equity, they need to consider a few factors associated with this type of home equity line of credit. First off, the homeowner needs to find out exactly how much equity they have in their home. This is done by looking at the statements of a mortgage that display the homeowner’s debt to the loan. Once the homeowner figures out their exact amount that is owed on the mortgage, the next step will be to have their home’s value assessed. The difference between the debt and the value of the home will be the equity of the home.

The homeowner will then identify how much money they want to borrow on their equity, which will be the principal of the loan. The next step is to figure out how much their monthly payments will be on the loan with interest payments. To calculate a HELOC loan, the homeowner must know the total amount that will be borrowed, and the interest rate that will be associated with the monthly payments. Another factor to consider is how long of a period will the HELOC loan will have.

A HELOC loan has what is called a draw period, which a period in which the borrower is only making interest payments. This period of time is usually around 5 to 10 years. After the draw period, the borrower will then begin making payments on the principal amount that has been borrowed. The homeowner must identify how many months the HELOC will be, in effect. To accurately calculate monthly payments on a HELOC loan, the borrower must know the total amount they will borrow, the interest rate of the HELOC loan, how many months the loan is being paid, and how much federal and state taxes will be associated with this type of loan.

The state in which the borrower of a HELOC loan lives in will determine the amount of state taxes that will be associated with the loan. Another factor to consider with a HELOC loan is the fact that after the draw period of the loan, payments are more than likely to double. The reason behind this deals with the fact that only interest payments are being made in the beginning. After the draw period, the principal will need to be paid off with monthly payments.

HELOC loans are a necessity for homeowners who are looking for a line of credit on their equity. In order to perform remodeling on a home, homeowners will use a second mortgage, a HELOC loan, and other types of equity line of credit plans. HELOC loans can also be used to consolidate debt as well. Calculating HELOC payments is made easy by going online and using one of the many HELOC loan calculators. Applying for this type of home equity line of credit is made easy online, and it only takes a few minutes to fill out an application. The borrower should have all the necessary paper in order before applying for a HELOC loan.