Bank, can you lend me the remainder of the amount I need for that home, which is essentially $375,000 (how do reverse 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 good task who has a great credit rating.
We need to have that title of your home and when you pay off the loan we're going to provide 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 - how do arm mortgages work.
But the title of your house, the file that says who actually owns your house, so this is the house title, this is the title of your home, home, home title. It will not go to me. It will go to the bank, the house title will go from the seller, possibly even the seller's bank, perhaps they have not paid off their home mortgage, 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 really it originates from old French, mort, indicates dead, dead, and the gage, indicates pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead pledge.
As soon as I settle the loan this pledge of the title to the bank will die, it'll come back to me. Which's why it's called a dead pledge or a home loan. And probably since it comes from old French is the reason that we do not say mort gage. We say, home loan.
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They're actually describing the home mortgage, home mortgage, the home mortgage loan. And what I wish to carry out in the rest of this video is utilize a little screenshot from a spreadsheet I made to really show you the mathematics or really reveal you what your home 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 mortgage, or in fact, even much better, simply go to the download, simply 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 mortgage calculator, home mortgage 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 second mortgages work in ontario. However what it does here remains 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 buying a $500,000 home. It's a 25 percent deposit, so that's the $125,000 that I had saved up, that I 'd spoken about http://griffininbr133.theburnward.com/h1-style-clear-both-id-content-section-0-what-does-how-does-bank-loan-for-mortgages-work-do-h1 right over there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to have to borrow $375,000. It computes 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, fixed rate, which suggests the interest rate will not alter. We'll speak 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 cost savings of the interest reduction on my loan? And we'll speak about that in a 2nd, we can overlook it for now. how do fixed rate mortgages work. And after that these other things that aren't in brown, you shouldn't tinker these if you in fact do open this spreadsheet yourself.
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So, it's actually the yearly rate of interest, 5.5 percent, divided by 12 and many home loan are compounded on a monthly basis. So, at the end of on a monthly basis they see how much cash you owe and after that they will charge you this much interest on that for the month.
It's in fact a quite fascinating problem. However for a $500,000 loan, well, a $500,000 house, a $375,000 loan over thirty years at a 5.5 percent rates of interest. My home loan payment is going to be roughly $2,100. Now, right when I bought your Learn more home I desire to introduce a bit of vocabulary and we've discussed this in some of the other videos.
And we're assuming that it deserves $500,000. We are assuming that it's worth $500,000. That is a property. It's a property due to the fact that it provides you future advantage, the future advantage of being able to live in it. Now, there's a liability versus 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 basically to offer the properties and pay off the debt. If you offer your house you 'd get the title, you can get the money and after that you pay it back to the bank.
But 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 deposit was however this is your equity.
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However you might not presume it's constant and play with the spreadsheet a little bit. However I, what I would, I'm introducing this because as we pay down the financial obligation this number is going to get smaller. So, this number is getting smaller, let's state eventually this is just $300,000, then my equity is going to get larger.
Now, what I've done here is, well, actually prior to I get to the chart, let me actually reveal you how I calculate the chart and I do this throughout thirty years and it goes by month. So, so you can picture that there's in fact 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
So, on month no, which I do not reveal here, you borrowed $375,000. Now, over the course of 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 home mortgage payments yet.
So, now prior to I pay any of my payments, instead of owing $375,000 at the end of the very first month I owe $376,718. Now, I'm a great guy, I'm not going to default on my mortgage so I make that first mortgage payment that we calculated, that we computed right over here (how do reverse mortgages work?).