Bank, can you lend me the rest of the amount I need for that house, which is essentially $375,000 (how do reverse mortgages work?). 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 nice person with an excellent job who has a great credit ranking.
We have to have that title of your house and as soon as 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 - how do second mortgages work.
But the title of the home, the file that states who really owns your home, so this is the house title, this is the title of your home, home, home title. It will not go to me. It will go to the bank, the house title will go from the seller, maybe even the seller's bank, maybe they haven't settled 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 home loan is. And really it originates from old French, mort, indicates 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.
When I settle the loan this promise of the title to the bank will pass away, it'll come back to me. Which's why it's called a dead promise or a home loan. And probably because it comes from old French is the reason we do not state mort gage. We say, home loan.
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They're truly referring to the home mortgage, mortgage, the home mortgage loan. And what I desire to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to actually show you the math or in fact reveal you what your 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 loan, or really, even much 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, mortgage calculator, calculator timeshare lawyer services dot XLSX.
But simply go to this URL and then you'll see all of the files there and then you can just download this file if you wish to have fun with it. how do mortgages payments work. However what it does here remains in this type of dark brown color, these are the presumptions that you might input and that you can change these cells in your spreadsheet without breaking the whole spreadsheet.
I'm purchasing a $500,000 home. It's a 25 percent deposit, so that's the $125,000 that I had actually 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 obtain $375,000. It computes it for us and then I'm going to get a quite plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate home mortgage, repaired rate, fixed rate, which indicates the rate of interest will not change. We'll discuss that in a bit. This 5.5 percent that I am paying on my, on the cash that I borrowed will not alter throughout the 30 years.
Now, this little tax rate that I have here, this is to in fact figure out, what is the tax savings of the interest deduction on my loan? And we'll speak about that in a second, we can disregard it for now. how do buy to rent mortgages work. And after that these other things that aren't in brown, you should not tinker these if you in fact do open this spreadsheet yourself.
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So, it's actually the yearly rate of interest, 5.5 percent, divided by 12 and a lot of home loan are compounded on a monthly basis. So, at the end of each month they see just how much cash you owe and after that they will charge you this much interest on that for the month.
It's really a quite interesting issue. 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 mortgage payment is going to be approximately $2,100. Now, right when I bought the home I wish to present a little bit of vocabulary and we have actually discussed this in some of the other videos.
And we're presuming that it deserves $500,000. We are presuming that it deserves $500,000. That is an asset. It's an asset due to the fact that it offers you future advantage, the future benefit of having the ability to live in it. Now, there's a liability against that asset, that's the home 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 debt and if you were essentially to sell the possessions and settle the debt. If you sell your 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 transaction immediately after doing it then you would have, you would have a $500,000 house, you 'd settle 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.
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However you could not assume it's continuous and have fun with the spreadsheet a little bit. However I, what I would, I'm introducing this because as we pay down the debt this number is going to get smaller. So, this number is getting smaller sized, let's say at some time this is only wesley financial group bad reviews $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, in fact before I get to the chart, let me really reveal you how I compute the chart and I do this throughout thirty years and it passes month. So, so you can think of that there's in fact 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.
So, on month absolutely no, which I do not reveal here, you borrowed $375,000. Now, over the course of that month they're going to charge you 0.46 percent interest, bear in mind that was 5.5 percent divided by 12. 0.46 percent interest on $375,000 is $1,718.75. So, I have not made any home loan payments yet.
So, now before I pay any of my payments, instead of owing $375,000 at the end of the first month I owe $376,718. Now, I'm an excellent man, I'm not going to default on my home loan so I make that first home mortgage payment that we computed, that we calculated right over here (how do reverse mortgages work?).