Let's state that there is a home that I like, let's state that that is the house that I wish to buy. It has a price of, let's state that I need to pay $500,000 to purchase that house, this is the seller of your house right here.
I want to buy it. I want to buy your home. This is me right here. And I've been able to save up $125,000. I have actually had the ability to save up $125,000 however I would actually like to reside in that home so I go to a bank, I go to a bank, get a brand-new color for the bank, so that is the bank right there.
Bank, can you lend me the remainder of the amount I require for that house, 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 look like, uh, uh, a great guy with a great job who has a good credit rating.
We need to have that title of the home and when you pay off the loan we're going to offer you the title of your 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.
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But the title of the home, the file that says who in fact 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 home title will go from the seller, perhaps even the seller's bank, possibly they have not settled 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 home loan is. This promising of the title for, as the, as the security for the loan, that's what a home mortgage is. how adjustable rate mortgages work. And in fact it comes from old French, mort, suggests dead, dead, and the gage, suggests promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead pledge.
When I pay off 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 mortgage. And most likely because it comes from old French is the factor why we don't say mort gage. We say, home mortgage.
They're truly referring to the home mortgage, mortgage, the mortgage. And what I desire to perform in the rest of this video is use a little screenshot from a spreadsheet I made to really reveal you the mathematics or actually 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 home mortgage calculator, home loan, or in fact, even better, simply go to the download, simply go to west land financial 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, home mortgage calculator, calculator dot XLSX.
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However just go to this URL and after that you'll see all of the files there and then you can just download this file if you desire to have fun with it. But what it does here is in this type 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 home. It's a 25 percent deposit, so that's the $125,000 that I had conserved up, that I 'd discussed right over there. And then 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 then I'm going to get a quite plain vanilla loan.
So, thirty years, it's going to be a 30-year fixed rate home mortgage, repaired rate, repaired rate, which indicates the interest rate won't change. We'll talk about that in a bit. This 5.5 percent that I am paying on my, on the money that I obtained will not alter throughout the 30 years.
Now, this little tax rate that I have here, this is to really find out, what is the tax savings of the interest deduction on my loan? And we'll speak about that in a second, we can disregard it in the meantime. And then these other things that aren't in brown, you should not tinker these if you in fact do open this spreadsheet yourself - how do commercial mortgages work.
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So, it's actually the annual rates of interest, 5.5 percent, divided by 12 and most home loan are compounded on a regular monthly basis. So, at the end of on a monthly basis 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 really a quite fascinating problem. But for a $500,000 loan, well, a $500,000 house, a $375,000 loan over 30 years at a 5.5 percent interest rate. My home mortgage payment is going to be roughly $2,100. Now, right when I purchased your house I desire to present a bit of vocabulary and we have actually talked about this in some of the other videos.
And we're assuming that it's worth $500,000. We are assuming that it's worth $500,000. That is an asset. It's a possession due to the fact that it provides you future advantage, the future advantage of being able to reside 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 financial obligation.
If this was all of your possessions and this is all of your financial obligation and if you were essentially to offer the properties and pay off the debt. how do second mortgages work in ontario. If you sell the house you 'd get the title, you can get the cash and then you pay it back to the bank.
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However if you were to unwind this transaction instantly after doing it then you would have, you would have a $500,000 home, you 'd pay off your $375,000 westlake las vegas resort in debt and you would get in your pocket $125,000, which is precisely what your original deposit was but this is your equity.
However you could not presume it's consistent and play with the spreadsheet a bit. However I, what I would, I'm presenting this since as we pay down the financial obligation this number is going to get smaller sized. So, this number is getting smaller sized, let's state at some point this is just $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, really before I get to the chart, let me really reveal you how I compute the chart and I do this throughout 30 years and it passes 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.