What Is the Payment on a $500,000 Home Equity Loan?

One of the biggest perks of homeownership is the ability to build equity over time. You can use that equity to secure low-cost funds in the form of a second mortgage—as either a home equity loan or a home equity line of credit (HELOC). With a home equity loan, you can borrow a lump sum, using the equity that you’ve built up in your house as collateral. Then, just like a regular mortgage, you pay this money back as a fixed monthly payment.

This payment depends on three main factors: how much you borrow, how long you borrow it for, and the interest rate. In this article, we’ll show you how these elements affect your monthly payment, give some typical values, and explore some of the additional costs of home equity loans.

Understanding Home Equity Loan Payments

The monthly payments for home equity loans depend on three main factors: how much you borrow, the length of time that you have to pay it back, and the interest rate that you are offered. All of these factors can have a large impact on the amount you owe each month. Let’s look at how they interact.

Loan Amount

The more you borrow, the more you’ll have to pay back per month. But you can’t borrow all the equity you’ve built up in your home, because banks underwrite second mortgages much like other home loans. Each bank has guidelines that dictate how much they can lend based on the value of your property and your creditworthiness. This is expressed in a measure known as the combined loan-to-value (CLTV) ratio. A bank typically may be able to lend you 80% of the value of your home, less the money you still owe on your first mortgage. 

Because of this, you have to have a lot of equity in your home, and your home has to be worth quite a lot of money, in order to borrow $500,000. This would be a large home equity loan, in other words. You could borrow $500,000 if, for example, your home is worth $750,000 and you have $100,000 left on your mortgage (because $750,000 × 0.80 = $600,000 - $100,000 = $500,000).

Loan Term

The term of a loan is the number of years needed to pay it off. For a given amount and interest rate, a longer term will have lower monthly payments but will charge more total interest over the life of the loan. Typically, the term of an equity loan can be anywhere from five to 30 years, but the length of the term must be approved by the lender. 

Interest Rate

The interest on the loan also affects your monthly payments. In turn, the interest rate that you are offered depends on a wide variety of factors. Usually, a longer loan term has a higher interest rate. Like other mortgages, your eligibility for a loan and interest rate depends on your employment history, income, and credit score. The higher your score, the lower the risk that you pose of defaulting on your loan, and the lower your rate.

As home equity loans are secured against your home, banks typically offer extremely competitive interest rates for these loan types—usually close to those of first mortgages. Compared with unsecured borrowing sources, such as credit cards, you’ll pay less in financing fees for the same loan amount.

Interest rates on a home equity loan are fixed, hence the fixed payments. The interest rate is higher than a HELOC, but it won't fluctuate with the market like the HELOC variable rate does.

Home Equity Loan Payment Examples

By taking into account all three of these factors, it’s possible to calculate indicative monthly payments for a $500,000 home equity loan. Here are the basic monthly repayments for a $500,000 loan at different interest rates, and at different term lengths:

Other Costs

These basic monthly repayments aren’t the only costs associated with home equity loans, though. When you take out a home equity loan, you’ll likely have to pay many of the same closing costs associated with a first mortgage, such as loan processing fees, origination fees, appraisal fees, and recording fees.

In addition, lenders may require you to pay points—that is, prepaid interest—at closing time. Each point is equal to 1% of the loan value. On a $100,000 loan, for example, one point would cost you $1,000. Points lower your monthly interest rate, which actually might help you in the long run. However, if you’re thinking about paying the loan off early, this kind of up-front interest doesn’t work in your favor.

These are all one-off payments, and they won’t affect your standard monthly loan repayments. However, they can add thousands of dollars to the cost of a home equity loan, so it’s important to be aware of them.

Frequently Asked Questions

The Bottom Line

A home equity loan uses the equity in your home—that is, the difference between your home’s value and your mortgage balance—as collateral. You will receive your loan as a lump sum, then pay this back in equal monthly payments.

The monthly payments for home equity loans depend on three main factors: how much you borrow, the length of time that you have to pay it back, and the interest rate that you are offered. Borrowing $500,000 over 30 years at a low interest rate will mean much lower monthly payments than borrowing the same amount over just five years at a high interest rate. At 5% interest over 15 years, you should expect to pay around $4,000 per month.

Other costs are associated with home equity loans, so make sure that you take these into account as well when you are calculating the cost of your loan.