Let's state that there is a home that I like, let's state that that is your house that I wish to acquire. It has a price of, let's state that I need to pay $500,000 to purchase that house, this is the seller of your house right here.
I would like to purchase it. I would like to purchase the home. This is me right here. And I have actually had the ability to save up $125,000. I have actually been able to conserve up $125,000 but I would actually like to reside 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 me the remainder of the quantity I need 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 appear like, uh, uh, a good guy with an excellent task who has a great credit rating.
We need to have that title of your home 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.
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However the title of your house, the document that states who in fact owns your house, so this is the home title, this is the title of the home, house, 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 settled their home loan, 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 vowing of the title for, as the, as the security for the loan, that's what a home mortgage is. how to reverse mortgages work. And in fact it comes from old French, mort, means dead, dead, and the gage, suggests pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead promise.
As soon as I pay off the loan this promise 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 mortgage. And probably because it comes from old French is the factor why we don't say mort gage. We say, mortgage.
They're truly describing the mortgage, home loan, the home loan. And what I wish to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to in fact show you the math or actually 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 mortgage calculator, home loan, or in fact, even much better, simply go to the download, just go to the downloads, downloads, uh, folder on your web browser, you'll see a lot of files and it'll be the file called home mortgage calculator, home loan calculator, calculator dot XLSX.
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However just go to this URL and then you'll see all of the files there and after that you can simply download this file if you desire to play with it. But what it does here is in this kind of dark brown color, these are the assumptions that you might input which you can change these cells in your spreadsheet without breaking the entire spreadsheet.
I'm purchasing a $500,000 house. It's a 25 percent down payment, so that's the $125,000 that I had conserved up, that I 'd spoken about right over there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to have to borrow $375,000. It determines 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 mortgage, repaired rate, fixed rate, which implies 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 cash that I borrowed will not alter over the course of the thirty years.
Now, this little tax rate that I have here, this is to really determine, what is the tax cost savings of the interest reduction on my loan? And we'll discuss that in a 2nd, we can overlook 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 this spreadsheet yourself - explain how mortgages work.
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So, it's actually the yearly rate of interest, 5.5 percent, divided by 12 and the majority of home loan are intensified on a month-to-month basis. So, at the end of each month they see just how much money you owe and after that they will charge you this much interest on that for the month.
It's actually a pretty interesting problem. However for a $500,000 loan, well, a $500,000 house, a $375,000 loan over 30 years at a 5.5 percent interest rate. My mortgage payment is going to be approximately $2,100. Now, right when I bought your house I want to present a bit of vocabulary and we've spoken about this in a few of the other videos.
And we're assuming that it deserves $500,000. We are presuming that it's worth $500,000. That is a property. It's a possession due to the fact that it gives 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 mortgage, 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 https://www.facebook.com/wesleyfinancialgroup financial obligation and if you were essentially https://www.benzinga.com/pressreleases/20/02/p15374673/34-companies-named-2020-best-places-to-work to offer the possessions and settle the debt. how adjustable rate mortgages work. If you sell the house you 'd get the title, you can get the money and then you pay it back to the bank.
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But if you were to unwind this deal right away after doing it then you would have, you would have a $500,000 home, you 'd pay off your $375,000 in debt and you would get in your pocket $125,000, which is exactly what your initial deposit was however this is your equity.
But you might not assume it's continuous and have fun with the spreadsheet a little bit. But I, what I would, I'm presenting this since as we pay down the debt this number is going to get smaller sized. So, this number is getting smaller, let's say eventually this is just $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, in fact prior to I get to the chart, let me actually show you how I determine the chart and I do this throughout thirty years and it passes month. So, so you can imagine that there's really 360 rows here on the real spreadsheet and you'll see that if you go and open it up.