Bank, can you provide me the remainder of the amount I require for that home, which is basically $375,000 (how do variable mortgages work in canada). 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 man with an excellent job who has a good credit ranking.
We need to have that title of the home and when you settle the loan we're going to provide you the title of your home. 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 - explain how mortgages work.
But the title of your home, the file that states who actually owns your house, so this is the house title, this is the title of your house, house, home title. It will not go to me. It will go to the bank, the home title will go from the seller, perhaps even the seller's bank, perhaps they haven't paid off https://marinklp8i.doodlekit.com/blog/entry/10558268/h1-styleclearboth-idcontentsection0the-smart-trick-of-how-reverse-mortgages-work-that-nobody-is-talking-abouth1 their home loan, it will go to the bank that I'm borrowing from.
So, this is the security right here. That is technically what a mortgage is. This vowing of the title for, as the, as the security for the loan, that's what a home loan is. And actually it originates from old French, mort, implies dead, dead, and the gage, implies promise, 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 return to me. Which's why it's called a dead pledge or a mortgage. And probably because it originates from old French is the factor why we don't state mort gage. We state, home mortgage.
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They're truly referring to the home mortgage, home mortgage, the mortgage. And what I want to Hop over to this website perform in the rest of this video is utilize a little screenshot from a spreadsheet I made to really show you the mathematics or in fact show you what your home loan payment is going to. And you can download, you can download this spreadsheet at Khan Academy, khanacademy.org/downloads, downloads, slash mortgage calculator, home loan, or in fact, even better, simply 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 mortgage calculator, calculator dot XLSX.
But 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 have fun with it. how do buy to let mortgages work uk. However what it does here is in this kind of dark brown color, these are the presumptions that you could input and that you can change these cells in your spreadsheet without breaking the entire spreadsheet.
I'm purchasing a $500,000 house. It's a 25 percent deposit, so that's the $125,000 that I had actually conserved 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 calculates 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 home loan, repaired rate, fixed rate, which means the interest rate will not change. 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 really determine, what is the tax cost savings of the interest reduction on my loan? And we'll talk about that in a 2nd, we can neglect it for now. how do mortgages work in the us. And after that these other things that aren't in brown, you shouldn't mess with these if you really do open up this spreadsheet yourself.
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So, it's literally the yearly rates of interest, 5.5 percent, divided by 12 and many home loan are intensified on a month-to-month basis. So, at the end of every month they see just how much money you owe and then they will charge you this much interest on that for the month.
It's in fact a quite fascinating problem. But for a $500,000 loan, well, a $500,000 home, a $375,000 loan over 30 years at a 5.5 percent interest rate. My home loan payment is going to be approximately $2,100. Now, right when I purchased your house I wish to present a bit of vocabulary and we've talked about this in a few of the other videos.
And we're presuming that it deserves $500,000. We are assuming that it's worth $500,000. That is a property. It's a property because it offers you future benefit, the future benefit of having the ability to reside in it. Now, there's a liability against that asset, that's the mortgage loan, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your properties and this is all of your debt and if you were essentially to sell the properties and settle the financial obligation. If you sell your home you 'd get the title, you can get the money and after that you pay it back to the bank.
However if you were to relax this transaction instantly after doing it then you would have, you would have a $500,000 house, you 'd pay off your $375,000 in debt and you would get in your pocket $125,000, which is exactly what your original down payment was however this is your equity.
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However you could not assume it's consistent and play with the spreadsheet a little bit. However I, what I would, I'm presenting this since as we pay for the debt this number is going to get smaller. So, this number is getting smaller sized, let's say at some time this is just $300,000, then my equity is going to get larger.
Now, what I have actually done here is, well, in fact prior to I get to the chart, let me in fact show you how I calculate the chart and I do this over the course of 30 years and it goes by month. So, so you can think of that there's actually 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 do not reveal here, you obtained $375,000. Now, over the course of that month they're going to charge you 0.46 percent interest, remember 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 home mortgage payments yet.
So, now before I pay any of my payments, instead of owing $375,000 at the end of the first month I owe $376,718. Now, I'm a hero, I'm not going to default on my home loan so I make that first mortgage payment that we computed, that we calculated right over here (explain how mortgages work).