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What I wish to do with this video is discuss what a home loan is but I think the majority of us have a least a basic sense of it. But even better than that actually enter into the numbers and understand a bit of what you are in fact doing when you're paying a home loan, what it's comprised of and just how much of it is interest versus how much of it is in fact paying for the loan.
Let's say that there is a home that I like, let's say that that is your home that I want to acquire (what does it mean when economists say that home buyers are "underwater" on their mortgages?). It has a cost of, let's state that I require to pay $500,000 to buy that house, this is the seller of the home right here.
I want to buy it. I want to purchase your home. This is me right here - which of the statements below is most correct regarding adjustable rate mortgages?. And I've had the ability to conserve up $125,000. non-federal or chartered banks who broker or lend for mortgages must be registered with. I have actually been able to conserve up $125,000 however I would actually like to live 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 timeshare experts me the remainder of the quantity I require 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 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 an excellent job who has a good credit rating.
We need to have that title of the house and when you settle the loan we're going to offer you the title of the home. So what's going to take place 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 the house, the file that says who in fact owns your house, so this is the home title, this is the title of the home, home, house title. It will not go to me. It will go to the bank, the home title will go from the seller, possibly even the seller's bank, maybe they haven't settled their mortgage, it will go to the bank that I'm obtaining from.
So, this is the security right here. That is technically what a home loan is. This pledging of the title for, as the, as the security for the loan, that's what a home loan is. And actually it comes from old French, mort, implies dead, dead, and the gage, indicates promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead pledge.
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Once I pay off the loan this http://cristiandmlx959.cavandoragh.org/a-biased-view-of-how-many-mortgages-should-i-apply-for pledge of the title to the bank will pass away, it'll come back to me. Which's why it's called a dead pledge or a mortgage. And probably due to the fact that it originates from old French is the reason that we do not state mort gage. what are points in mortgages. We say, mortgage.
They're really describing the mortgage, mortgage, the home mortgage loan. And what I desire to carry out in the rest of this video is use a little screenshot from a spreadsheet I made to actually show you the math or in fact 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 mortgage calculator, 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 mortgage calculator, home mortgage calculator, calculator dot XLSX.
But just go to this URL and then you'll see all of the files there and then you can simply download this file if you want to play with it. But what it does here is in this kind of dark brown color, these are the presumptions that you could input and that you can alter 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 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 determines it for us and after that I'm going to get a pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate mortgage, repaired rate, fixed rate, which means the rates of interest won't alter. 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 alter throughout the thirty years.
Now, this little tax rate that I have here, this is to in fact figure out, what is the tax cost savings of the interest reduction on my loan? And we'll discuss that in a 2nd, we can ignore it for now. And after that these other things that aren't in brown, you shouldn't tinker these if you actually do open up this spreadsheet yourself.
So, it's actually the yearly rates of interest, 5.5 percent, divided by 12 and many home mortgage loans are intensified on a regular monthly basis. So, at the end of monthly they see just how much money 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 issue. But for a $500,000 loan, well, a $500,000 home, a $375,000 loan over 30 years at a 5.5 percent rates of interest. My home loan payment is going to be roughly $2,100. Now, right when I purchased the house I wish to introduce a little 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 assuming that it's worth $500,000. That is an asset. It's a property due to the fact that it provides you future advantage, the future benefit of being able to live in it. Now, there's a liability against that asset, that's the mortgage, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your properties and this is all of your financial obligation and if you were essentially to sell the possessions and pay off the debt. If you offer your home you 'd get the title, you can get the cash and then you pay it back to the bank.
But if you were to unwind this transaction right away after doing it then you would have, you would have a $500,000 house, you 'd settle your $375,000 in financial obligation and you would get in your pocket $125,000, which is precisely what your original down payment was however this is your equity.