Bank, can you lend me the remainder of the amount I require for that house, which is basically $375,000 (how do commercial mortgages work). I'm putting 25 percent down, this right, this right, this number right here, that is 25 percent of $500,000. So, I ask the bank, can I have a loan for the balance? Can I have a $375,000 loan? And the bank states, sure, you appear like, uh, uh, a nice guy with a great job who has an excellent credit ranking.
We have to have that title of the house and once you pay off the loan we're going to give you the title of the house. So what's going to occur here is we're going to have the loan is going to go to me, so it's $375,000, $375,000 loan - how do home mortgages work.
But the title of your home, the file that says who really owns your home, so this is the home title, this is the title of your home, house, house title. It will not go to me. It will go to the bank, the home title will go from the seller, possibly even the seller's bank, perhaps they haven't paid off their home mortgage, it will go to the bank that I'm borrowing from.
So, this is the security right here. That is technically what a home loan is. This vowing of the title for, as the, as the security for the loan, that's what a home mortgage is. And actually it comes from old French, mort, indicates dead, dead, and the gage, means pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead promise.
As soon as I settle the loan this pledge of the title to the bank will die, it'll come back to me. Which's why it's called a dead promise https://writeablog.net/thoinefryx/if-the-lender-takes-your-house-in-a-foreclosure-youand-39-ll-likewise-lose-any or a home mortgage. And most likely because it originates from old French is the reason we do not say mort gage. We state, home loan.
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They're really describing the home loan, home loan, the home loan. And what I want more info to carry out in the rest of this video is utilize a little screenshot from a spreadsheet I made to actually reveal you the math or actually show you what your home mortgage payment is going to. And you can download, you can download this spreadsheet at Khan Academy, khanacademy.org/downloads, downloads, slash home loan calculator, home loan, or really, even better, just go to the download, simply go to the downloads, downloads, uh, folder on your web browser, you'll see a bunch of files and it'll be the file called mortgage calculator, home loan calculator, calculator dot XLSX.
However just go to this URL and then you'll see all of the files there and then you can simply download this file if you desire to play with it. how do adjustable rate mortgages work. But what it does here remains in this kind of dark brown color, these are the assumptions that you might input and that you can change these cells in your spreadsheet without breaking the whole spreadsheet.
I'm purchasing a $500,000 home. It's a 25 percent deposit, so that's the $125,000 that I had saved up, that I 'd spoken about right there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to have to obtain $375,000. It determines it for us and then I'm going to get a pretty plain vanilla loan.
So, thirty years, it's going to be a 30-year set rate mortgage, fixed rate, repaired rate, which means the rate of interest won't alter. We'll speak about that in a little bit. This 5.5 percent that I am paying on my, on the cash that I obtained will not change over the course of the thirty years.
Now, this little tax rate that I have here, this is to in fact determine, what is the tax savings of the interest deduction on my loan? And we'll discuss that in a 2nd, we can overlook it for now. how do reverse mortgages really work. And then these other things that aren't in brown, you should not tinker these if you really do open this spreadsheet yourself.
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So, it's actually the yearly interest rate, 5.5 percent, divided by 12 and many mortgage loans are compounded on a month-to-month basis. So, at the end of every month they see just how much money you owe and after that they will charge you this much interest on that for the month.
It's actually a quite intriguing issue. However for a $500,000 loan, well, a $500,000 home, a $375,000 loan over thirty years at a 5.5 percent rate of interest. My home mortgage payment is going to be approximately $2,100. Now, right when I bought your home I wish to introduce a little bit of vocabulary and we've spoken about this in some of the other videos.
And we're presuming that it deserves $500,000. We are presuming that it's worth $500,000. That is a possession. It's a property because it gives you future advantage, the future benefit of being able to reside in it. Now, there's a liability against that possession, that's the mortgage loan, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your assets and this is all of your debt and if you were basically to offer the properties and pay off the financial obligation. If you sell your house you 'd get the title, you can get the money and then you pay it back to the bank.
But if you were to relax this transaction right away after doing it then you would have, you would have a $500,000 house, you 'd settle your $375,000 in debt and you would get in your pocket $125,000, which is exactly what your original deposit was however this is your equity.
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However you could not presume it's constant and have fun with the spreadsheet a bit. But I, what I would, I'm introducing this since as we pay down the financial obligation this number is going to get smaller. So, this number is getting smaller, let's state at some time this is only $300,000, then my equity is going to get larger.
Now, what I've done here is, well, really prior to I get to the chart, let me actually show you how I compute the chart and I do this over the course of thirty years and it passes month. So, so you can envision that there's in fact 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
So, on month zero, which I don't show here, you borrowed $375,000. Now, throughout that month they're going to charge you 0.46 percent interest, keep in mind that was 5.5 percent divided by 12. 0.46 percent interest on $375,000 is $1,718.75. So, I have not made any mortgage payments yet.
So, now before I pay any of my payments, rather of owing $375,000 at the end of the very first month I owe $376,718. Now, I'm a hero, I'm not going to default on my home mortgage so I make that first home loan payment that we calculated, that we calculated right over here (how do adjustable rate mortgages work).