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What I wish to finish with this video is describe what a home loan is however I think many of us have a least a general sense of it. However even much better than that in fact go into the numbers and comprehend a little bit of what you are in fact doing when you're paying a home loan, what it's comprised of and just how much of it is interest versus just how much of it is actually paying down the https://writeablog.net/merianpkpt/b-table-of-contents-b-a-qrkl loan.
Let's say that there is a home that I like, let's state that that is the house that I want to acquire (how do mortgages work). It has a price of, let's state that I need to pay $500,000 to purchase that house, this is the seller of the house right here.
I want to purchase it. I want to purchase the house. This is me right here - why are reverse mortgages bad. And I've been able to save up $125,000. which of the statements below is most correct regarding adjustable rate mortgages?. I've been able to conserve up $125,000 however I would actually like to live in that house so I go to a bank, I go to a bank, get a new color for the bank, so that is the bank right there.
Bank, can you lend me the remainder of the quantity I require for that home, which is essentially $375,000. 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 says, sure, you seem like, uh, uh, a great man with an excellent job who has a good credit ranking.
We need to have that title of the home and once you pay off the loan we're going to provide you the title of your house. So what's going to happen here is we're going to have the loan is going to go to me, so it's $375,000, $375,000 loan.
But the title of your house, the document that states who actually owns your home, so this is the home title, this is the title of the house, house, home title. It will not go to me. It will go to the bank, the house title will go from the seller, perhaps even the seller's bank, possibly they have not paid off their home loan, it will go to the bank that I'm obtaining 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 mortgage is. And really it originates from old French, mort, indicates dead, dead, and the gage, implies pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead promise.
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When I settle the loan this pledge of the title to the bank will pass away, it'll come back to me. Which's why it's called a dead pledge or a mortgage. And most likely due to the fact that it comes from old French is the reason that we do not state mort gage. which type of interest is calculated on home mortgages. We say, home mortgage.
They're actually referring to the home loan, mortgage, the mortgage. And what I want to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to really reveal you the mathematics or actually reveal you what your 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 actually, even much better, simply 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 home mortgage calculator, mortgage calculator, calculator dot XLSX.
But just go to this URL and then you'll see all of the files there and after that you can simply download this file if you wish to play with it. But what it does here is in this kind of dark brown color, these are the presumptions that you could input which you can change these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying a $500,000 home. It's a 25 percent down payment, so that's the $125,000 that I had saved up, that I 'd discussed right there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to need to obtain $375,000. It calculates it for us and then I'm going to get a quite plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate home mortgage, fixed rate, repaired rate, which means the rate of interest will not alter. We'll talk about that in a bit. This 5.5 percent that I am paying on my, on the cash that I borrowed will not alter throughout the 30 years.
Now, this little tax rate that I have here, this is to really determine, what is the tax savings of the interest reduction on my loan? And we'll speak about that in a second, we can neglect it for now. And then these other things that aren't in brown, you should not mess with these if you really do open this spreadsheet yourself.
So, it's actually the yearly interest rate, 5.5 percent, divided by 12 and many mortgage are compounded on a monthly basis. So, at the end of monthly they see how Informative post much cash you owe and then they will charge you this much interest on that for the month.
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It's actually a pretty intriguing problem. But for a $500,000 loan, well, a $500,000 house, a $375,000 loan over thirty years at a 5.5 percent interest rate. My home mortgage payment is going to be approximately $2,100. Now, right when I bought the home I wish to present a bit of vocabulary and we've discussed 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 an asset. It's an asset since it offers you future benefit, the future benefit of having the ability to reside in it. Now, there's a liability against that property, that's the home 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 financial obligation and if you were basically to sell the properties and pay off the debt. If you offer your house you 'd get the title, you can get the cash and then you pay it back to the bank.
But if you were to unwind this deal instantly after doing it then you would have, you would have a $500,000 house, you 'd settle your $375,000 in financial obligation and you would get in your pocket $125,000, which is precisely what your initial down payment was however this is your equity.