Bank, can you lend me the remainder of the quantity I need for that home, which is essentially $375,000 (how do 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 says, sure, you appear like, uh, uh, a great man with a great task who has an excellent credit score.
We need to have that title of your home and as soon as you pay off the loan we're going to provide you the title of your home. 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 mortgages work.
But the title of your house, the document that says who actually owns your home, so this is the house title, this is the title of your house, home, house title. It will not go to me. It will go to the bank, the home title will go from the seller, maybe even the seller's bank, possibly they haven't settled their home mortgage, it will go to the bank that I'm obtaining from.
So, this is the security right here. That is technically what a home mortgage 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, implies dead, dead, and the gage, indicates promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.
As soon as I settle the loan this pledge of the title to the bank will die, it'll return to me. And that's why it's called a dead pledge or a home loan. And most likely because it originates from old French is the reason that we do not state mort gage. We say, home loan.
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They're truly referring to the mortgage, mortgage, the mortgage. And what I desire to do in the rest of this video is use a little screenshot from a spreadsheet I made to actually show you the math or in fact show 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 mortgage calculator, mortgage, or really, even much better, just go to the download, simply go to the downloads, downloads, uh, folder on your web browser, you'll see a lot of files and it'll be the file called home loan calculator, home loan calculator, calculator dot XLSX.
However simply go to this URL and after that you'll see all of the files there and after that you can simply download this file if you wish to play with it. how do reverse mortgages work example. But what it does here remains in this sort of dark brown color, these are the presumptions that you might input which you can change these cells in your spreadsheet without breaking the whole spreadsheet.
I'm buying a $500,000 house. It's a 25 percent down payment, so that's the $125,000 that I had actually 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 have to obtain $375,000. It computes it for us and after that I'm going to get a quite plain vanilla loan.
So, 30 years, it's going to be a 30-year set rate mortgage, fixed rate, fixed rate, which implies the rate of interest will not change. We'll discuss that in a bit. This 5.5 percent that I am paying on my, on the money that I borrowed will not change throughout the thirty years.
Now, this little tax rate that I have here, this is to in fact figure out, what is the tax cost savings of the interest deduction on my loan? And we'll talk about that in a 2nd, we can neglect it in the meantime. how to reverse mortgages work. And then these other things that aren't in brown, you should not mess with these if you actually do open this spreadsheet yourself.
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So, it's literally the annual interest rate, 5.5 percent, divided by 12 and the majority of home mortgage loans are compounded on a monthly basis. So, at the end of every month they see how much cash you owe and then they will charge you this much interest on that for the month.
It's really a quite fascinating issue. But for a $500,000 loan, well, a $500,000 house, a https://www.openlearning.com/u/chesser-qfm1ry/blog/H1StyleclearbothIdcontentsection0FactsAboutHowDoesUnderwritingWorkForMortgagesUncoveredh1/ $375,000 loan over 30 years at a 5.5 percent rate of interest. My mortgage payment is going to be roughly $2,100. Now, right when I purchased the home I desire to introduce a bit of vocabulary and we have actually discussed this in a few of the other videos.
And we're presuming that it's worth $500,000. We are presuming that it deserves $500,000. That is a possession. It's a property due to the fact that it gives you future benefit, the future benefit of having the ability to live in it. Now, there's a liability versus 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 possessions and this is all of your financial obligation and if you were essentially to offer the assets and settle the debt. If you sell your house you 'd get the title, you can get the cash and after that you pay it back to the bank.
But if you were to relax this deal right away after doing it then you would have, you would have a $500,000 home, you 'd pay off your $375,000 in financial obligation and you would get in your pocket $125,000, which is exactly what your initial down payment was but this is your equity.
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However you might not assume it's continuous and play with the spreadsheet a little bit. However I, what I would, I'm presenting this since as we pay down the debt this number is going to get smaller sized. So, this number is getting smaller, let's state at some point this is only $300,000, then my equity is going to get bigger.
Now, what I've done here is, well, in fact prior to I get to the chart, let me really reveal you how I determine the chart and I do this over the course of thirty years and it goes by month. So, so you can think of that there's in fact 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.
So, on month zero, which I don't Hop over to this website reveal here, you obtained $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 haven't 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 an excellent man, I'm not going to default on my home mortgage so I make that very first home mortgage payment that we determined, that we determined right over here (how home mortgages work).