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What I wish to finish with this video is describe what a home loan is but I think most of us have a least a basic sense of it. But even better than that actually go into the numbers and comprehend a bit of what you are really doing when you're paying a mortgage, what it's made up of and just how much of it is interest versus how much of it is really paying for the loan.
Let's state that there is a home that I like, let's say that that is the home that I would like to buy (what is the current interest rate for mortgages). It has a cost tag of, let's state that I require to pay $500,000 Additional reading to buy that house, this is the seller of the house right here.
I would like to purchase it. I would like to purchase your home. This is me right here - which type of interest is calculated on home mortgages. And I have actually had the ability to conserve up $125,000. how do reverse mortgages work. I've had the ability to conserve up $125,000 but I would actually like to live in that home 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 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 appear like, uh, uh, a good man with a great job who has a good credit ranking.
We have to have that title of your house and as soon as 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.
But the title of your home, the file that says who actually owns the home, so this is the house title, this is the title of your house, home, 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, perhaps they haven't 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 mortgage is. This vowing of the title for, as the, as the security for the loan, that's what a home mortgage is. And really it originates from old French, mort, means dead, dead, and the gage, means pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead pledge.
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As soon as I settle the loan this pledge 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 probably because it originates from old French is the reason that we do not say mort gage. how do second mortgages work. We say, home loan.
They're actually describing the home loan, home loan, the mortgage. And what I want 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 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 home loan calculator, home mortgage, https://www.liveinternet.ru/users/tirlewb1kw/post473960787/ or actually, even better, just go to the download, just go to the downloads, downloads, uh, folder on your web internet browser, you'll see a bunch of files and it'll be the file called mortgage calculator, home mortgage calculator, calculator dot XLSX.
But simply go to this URL and then 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 is in this kind of dark brown color, these are the assumptions that you could input and that you can alter these cells in your spreadsheet without breaking the entire spreadsheet.
I'm purchasing a $500,000 home. It's a 25 percent down payment, so that's the $125,000 that I had saved up, that I 'd discussed right over there. And after that the, uh, loan quantity, 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, repaired rate, which means the rates of interest won't 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 change over the course of the 30 years.
Now, this little tax rate that I have here, this is to actually determine, what is the tax savings of the interest deduction on my loan? And we'll speak about that in a second, we can ignore it in the meantime. And after that these other things that aren't in brown, you shouldn't tinker these if you actually do open this spreadsheet yourself.
So, it's literally the annual rate of interest, 5.5 percent, divided by 12 and a lot of mortgage are intensified on a regular monthly 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 intriguing problem. However 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 roughly $2,100. Now, right when I purchased the house I wish to present a little bit of vocabulary and we have actually spoken about this in a few of the other videos.
And we're presuming that it deserves $500,000. We are assuming that it deserves $500,000. That is a possession. It's a property because it offers you future benefit, the future advantage of having the ability to reside in it. Now, there's a liability against that property, that's the home mortgage loan, that's the $375,000 liability, $375,000 loan or financial obligation.
If this was all of your properties and this is all of your financial obligation and if you were basically to sell the properties and pay off the debt. If you offer the house you 'd get the title, you can get the cash and then you pay it back to the bank.
However if you were to relax this deal immediately 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 initial down payment was but this is your equity.