How to Calculate Equity Loan Payments
Equity loans use a piece of property as collateral to secure the loan in the case of default. Most common are home equity loans, which allow borrowers to secure a lower interest rate by using their home as collateral for the loan. When budgeting for an equity loan, you need to know the size of the monthly payments. The amount of the monthly payment is determined by the length of the loan, the interest rate and how much is borrowed.
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Instructions
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Figure the number of payments you will make over the life of the loan by multiplying the number of years in the term of the loan by 12. For example, if your home equity loan is to be repaid over 10 years, you would multiply 10 by 12 to get 120.
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Figure the monthly interest rate expressed as a decimal by dividing the annual interest rate expressed as a decimal by 12. For example, if your annual interest rate equals 5.4 percent, you would divide 0.054 by 12 to get 0.0045.
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3
Multiply the monthly interest rate expressed as a decimal by the balance of your equity loan. In this example, if you borrowed $20,000, you would multiply $20,000 by 0.0045 to get $90.
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Compute 1 plus the monthly interest rate. Furthering the example, you would find 1 plus 0.0045 to be 1.0045.
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Raise the result to the opposite of the number of monthly payments you will make. In this example, you would raise 1.0045 to the -120th power to get 0.583454602.
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Subtract the result from 1. In this example, you would take 0.583454602
away from 1 to get 0.416545398.
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Calculate the loan payment on the equity loan. Finishing the example, you would divide $90 by 0.416545398 to find the equity loan payment would be $216.06.
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References
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