Let's state that there is a home that I like, let's state that that is your house that I want to buy. It has a cost of, let's say that I need to pay $500,000 to purchase that house, this is the seller of your house right here.
I want to purchase it. I wish to buy the home. This is me right here. And I have actually been able to conserve up $125,000. I have actually had the ability to save up $125,000 however I would really 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 need for that home, which is basically $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 https://www.facebook.com/wesleyfinancialgroup 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 guy with an excellent job who has an excellent credit ranking.
We need to have that title of your house and when you settle the loan we're going to offer 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.
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However the title of the house, the document that says who in fact owns your home, so this is the house title, this is the title of your house, house, house 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, possibly they have not 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 mortgage is. This promising of the title for, as the, as the security for the loan, that's what a mortgage is. how does chapter 13 work with mortgages. And really it originates from old French, mort, suggests dead, dead, and the gage, suggests pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead promise.
When I settle the loan this promise of the title to the bank will die, it'll come back to me. And that's why it's called a dead promise or a home loan. And most likely since it originates from old French is the reason why we don't state mort gage. We say, home loan.
They're actually referring to the mortgage, home loan, the home loan. And what I desire to perform in the rest of this video is utilize a little screenshot from a spreadsheet I made to in fact reveal you the math or really 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 mortgage, or actually, even better, simply go to the download, just go to the downloads, downloads, uh, folder on your web internet browser, you'll see a lot of files and it'll be the file called home loan calculator, home mortgage calculator, calculator dot XLSX.
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However simply go to this URL and after that you'll see all of the files there and then you can simply download this file if you wish to have fun with it. But what it does here remains in this sort 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 whole spreadsheet.
I'm buying a $500,000 home. It's a 25 percent deposit, so that's the $125,000 that I had actually conserved up, that I 'd talked about right there. And then the, uh, loan amount, well, I have the $125,000, I'm going to have to borrow $375,000. It calculates it for us and after that I'm going to get a quite plain vanilla loan.
So, thirty years, it's going to be a 30-year fixed rate home loan, repaired rate, repaired rate, which indicates the rate of interest will not alter. We'll discuss that in a little bit. This 5.5 percent that I am paying on my, on the money that I borrowed will not alter throughout the thirty years.
Now, this little tax rate that I have here, this is to in fact find out, what is the tax savings of the interest reduction on my loan? And we'll talk about that in a 2nd, we can ignore it for now. And then these other things that aren't in brown, you should not tinker these if you actually do open up this spreadsheet yourself - how do mortgages payments work.
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So, it's literally the annual rates of interest, 5.5 percent, divided by 12 and a lot of home loan are compounded on a regular monthly basis. So, at the end of each month they see how much money you owe and after that they will charge you this much interest on that for the month.
It's really a pretty interesting issue. However for a $500,000 loan, well, a $500,000 house, a $375,000 loan over thirty years at a 5.5 percent rate of interest. My mortgage payment is going to be roughly $2,100. Now, right when I bought the home I wish to introduce a little bit of vocabulary and we've talked about this in some of the other videos.
And we're assuming that it deserves $500,000. We are presuming that it's worth $500,000. That is a possession. It's an asset since it offers you future benefit, the future benefit of having the ability to live in it. Now, there's a liability versus that asset, that's the home 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 debt and if you were essentially to offer the properties and pay off the financial obligation. reverse mortgages how they work. If you sell your house you 'd get the title, you can get the cash and then you pay it back to the bank.
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But if you were to relax this transaction immediately after doing it then you would have, you would have a $500,000 house, you 'd pay off your $375,000 in financial obligation and you would get in your pocket $125,000, which is exactly what your original deposit was however this is your equity.
But you could not presume it's consistent and have fun with https://www.benzinga.com/pressreleases/20/02/p15374673/34-companies-named-2020-best-places-to-work the spreadsheet a bit. However I, what I would, I'm introducing this due to the fact that as we pay down the financial obligation this number is going to get smaller sized. So, this number is getting smaller, let's say at some time this is only $300,000, then my equity is going to get bigger.
Now, what I've done here is, well, in fact before I get to the chart, let me actually reveal you how I compute the chart and I do this throughout 30 years and it goes by month. So, so you can imagine that there's really 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.