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What I desire to finish with this video is discuss what a mortgage is but I believe the majority of us have a least a basic sense of it. But even much better than that actually enter into the numbers and comprehend a little bit of what you are really doing when you're paying a home loan, what it's comprised of and how much of it is interest versus just how much of it is actually paying down the loan.
Let's say that there is a house that I like, let's say that that is the house that I would like to purchase (how mortgages work). It has a price of, let's state that I need to pay $500,000 to buy that house, this is the seller of your home right here.
I would like to purchase it. I would like to purchase your house. This is me right here - what are mortgages interest rates today. And I've had the ability to save up $125,000. what are subprime mortgages. I have actually had the ability to conserve up $125,000 however I would really 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 provide me the remainder of the amount 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 states, sure, you look like, uh, uh, a good man with an excellent task who has an excellent credit rating.
We have to have that title of your house and as soon as you pay off the loan we're going to provide you the title of your home. So what's going to happen 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 home, the file that states who in fact owns the home, so this is the home 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, https://gumroad.com/margartqxj/p/5-easy-facts-about-how-do-reverse-mortgages-work-described 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 mortgage is. And really it originates from old French, mort, suggests dead, dead, and the gage, indicates pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead promise.
Fascination About How Many Mortgages Should I Apply For
Once I pay off the loan this promise of the title to the bank will die, it'll come back to me. Which's why it's called a dead promise or a home loan. And probably since it comes from old French is the reason we do not say mort gage. what is the current interest rate for mortgages. We state, home mortgage.
They're really referring to the mortgage, mortgage, the 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 in fact reveal you the mathematics 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, home mortgage, or in fact, even much better, simply go to the download, simply go Get more information 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.
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. However 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 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 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 calculates 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 fixed rate mortgage, fixed rate, fixed rate, which suggests the rates of interest will not alter. We'll discuss that in a little bit. This 5.5 percent that I am paying on my, on the cash that I obtained will not alter over the course of 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 talk about that in a 2nd, we can ignore it for now. And after that these other things that aren't in brown, you should not tinker these if you actually do open up this spreadsheet yourself.
So, it's literally the yearly interest rate, 5.5 percent, divided by 12 and a lot of home mortgage loans are compounded on a monthly basis. So, at the end of every month they see how much cash you owe and then they will charge you this much interest on that for the month.
Getting The How Adjustable Rate Mortgages Work To Work
It's actually a quite fascinating problem. But 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 the house I want to introduce a bit of vocabulary and we've talked about this in some of the other videos.
And we're assuming that it deserves $500,000. We are presuming that it deserves $500,000. That is a possession. It's an asset since it gives you future advantage, the future advantage of having the ability to live in it. Now, there's a liability against that asset, that's the mortgage 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 debt and if you were basically to offer the possessions and settle the debt. If you offer the home you 'd get the title, you can get the cash and after that you pay it back to the bank.
However 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 financial obligation and you would get in your pocket $125,000, which is exactly what your initial down payment was however this is your equity.