Table of ContentsThe 30-Second Trick For What Are Points In MortgagesFascination About How Do Escrow Accounts Work For MortgagesWho Offers 40 Year Mortgages Things To Know Before You Get This
What I wish to finish with this video is discuss what a home loan is but I believe the majority of us have a least a general sense of it. But even better than that in fact go into the numbers and comprehend a little bit of what you are actually doing when you're paying a home loan, what it's made up of and how much of it is interest versus how much of it is in fact paying down the loan.
Let's say that there is a house that I like, let's state that that is the home that I wish to buy (which type of interest is calculated on home mortgages). It has a cost of, let's say that I require to pay $500,000 to buy that house, this is the seller of Find out more your house right here.
I want to purchase it. I wish to buy your house. This is me right here - what is the current interest rate for mortgages. And I have actually had the ability to conserve up $125,000. reverse mortgages are most useful for elders who. I have actually been able to conserve up $125,000 however I would actually 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 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 states, sure, you look like, uh, uh, a great man with a great job who has an excellent credit rating.
We have to have that title of the home and when you settle the loan we're going http://franciscotsru776.fotosdefrases.com/h1-style-clear-both-id-content-section-0-examine-this-report-on-what-percentage-of-mortgages-are-fha-h1 to provide you the title of the 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.
However the title of your house, the file that states who really owns your house, so this is the home title, this is the title of your home, home, 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 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 promising of the title for, as the, as the security for the loan, that's what a mortgage is. And actually it originates from old French, mort, means dead, dead, and the gage, implies promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead pledge.
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As soon as I settle the loan this pledge of the title to the bank will pass away, it'll return to me. Which's why it's called a dead promise or a home loan. And most likely due to the fact that it originates from old French is the reason that we do not state mort gage. why do banks sell mortgages. We state, home mortgage.
They're actually describing the home loan, home mortgage, the mortgage loan. And what I desire to carry out in the rest of this video is utilize a little screenshot from a spreadsheet I made to in fact reveal you the math or actually show 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 mortgage calculator, home mortgage, or in fact, even better, just go to the download, just go to 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.
But just go to this URL and after that you'll see all of the files there and after that you can just download this file if you wish to play with it. But what it does here remains in this type of dark brown color, these are the presumptions that you could input which you can alter 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 need to borrow $375,000. It computes it for us and then I'm going to get a pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year set rate mortgage, repaired rate, repaired rate, which indicates the rates of interest will not change. We'll speak about that in a little bit. This 5.5 percent that I am paying on my, on the money 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 actually determine, what is the tax cost savings of the interest reduction on my loan? And we'll speak about that in a second, we can ignore it for now. And after that these other things that aren't in brown, you should not mess with these if you actually do open up this spreadsheet yourself.
So, it's literally the yearly rate of interest, 5.5 percent, divided by 12 and a lot of home loan loans are intensified on a month-to-month basis. So, at the end of each month they see how much cash you owe and after that they will charge you this much interest on that for the month.
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It's in fact a quite interesting 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 home I wish to introduce a bit of vocabulary and we've talked about this in some of the other videos.
And we're presuming that it's worth $500,000. We are presuming that it's worth $500,000. That is an asset. It's a property because it provides you future advantage, the future advantage of having the ability to live in it. Now, there's a liability against that possession, that's the home mortgage loan, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your assets and this is all of your debt and if you were essentially to sell the possessions and pay off the debt. If you sell the home 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 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.