How much lower does a home equity loan payment get if you stretch the term, and what does that cost?
Summary
On a $50,000 fixed-rate loan at 6.75%, the monthly payment is $574.12 over 10 years, $442.45 over 15, $380.18 over 20 and $324.30 over 30. Each step down in payment adds interest: going from 10 years to 20 saves $193.94 a month and adds about $22,349 in interest. At a 13.75% rate the trade gets worse, because stretching from 15 to 20 years cuts the payment by only $44.79.
Payments at the low end of one lender's range
Regions Bank prices its home equity loan from 6.75% to 13.75% APR over 10, 15 or 20 years and pays the closing costs. Spring EQ offers terms "ranging from 10 to 30 years" but doesn't publish a rate, so the 30-year row below uses 6.75% for comparison.
| Term | Monthly payment | Interest paid over the full term |
|---|---|---|
| 10 years | $574.12 | $18,894 |
| 15 years | $442.45 | $29,642 |
| 20 years | $380.18 | $41,244 |
| 30 years | $324.30 | $66,748 |
The 10-year figure matches the first repayment example Regions publishes: "$50,000 loan, 10-year term, 6.75% APR, 120 monthly payments of $574.12." Its second example, 15 years at 13.75%, comes to $657.49 a month, and the same formula gives the same number. Regions adds that "These payments do not include taxes and insurance premiums."
At the top of the range
Run the same $50,000 at 13.75% and the payment is $768.83 over 10 years, $657.49 over 15 and $612.70 over 20. Interest over 20 years comes to about $97,049, nearly twice the amount borrowed. Moving from 15 to 20 years saves $44.79 a month and costs about $28,700 more in interest. At 6.75% the same move saves $62.27 a month for about $11,602 more interest. When most of each payment is interest, a longer term mainly delays the principal.
The formula, and which rate goes in it
Payment = P × r / (1 − (1 + r)^−n), where P is the loan amount, r is the annual rate divided by 12 and n is the number of monthly payments. For $50,000 at 6.75% over 120 months, r is 0.005625.
Use the note rate, not the APR. APR folds some fees into the finance charge, so on a loan with fees it sits above the rate that sets the payment. Regions' APR and rate line up in its examples, which fits a loan where the bank covers closing costs. A lender's schedule can still differ by a few cents from rounding.
Sources
- Regions Bank, regions.com/personal-banking/home-equity/home-equity-loan
- Spring EQ, springeq.com/home-equity-loan
- eCFR, ecfr.gov/current/title-12/chapter-X/part-1026/subpart-A/section-1026.4
Written by Kaz (pen name). Figures are copied from providers' published pages on the dates shown. We have not used these products. Corrections: contact form.