Let's say that there is a house that I like, let's state that that is your home that I want to purchase. It has a price of, let's say that I need to pay $500,000 to purchase that home, this is the seller of your home right here.
I would like to buy it. I would like to purchase your house. This is me right here. And I have actually been able to conserve up $125,000. I've been able to save up $125,000 however I would really like to live in that house 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 rest of the quantity I require for that house, 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 seem like, uh, uh, a nice person with a great job who has a great credit ranking.
We have to have that title of the house and as soon as you pay off the loan we're going to give you the title of the home. 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.
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But the title of the house, the file that says who actually owns the home, so this is the house title, this is the title of the home, house, 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 paid off 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 mortgage is. how do fixed rate mortgages work. And actually it originates from old French, mort, indicates dead, dead, and the gage, indicates promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead promise.
Once I pay off 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 mortgage. And probably because it comes from old French is the factor why we do not state mort gage. We say, home loan.
They're truly describing the home loan, home loan, the home loan. And what I wish to carry out in the rest of this video is use a little screenshot from a spreadsheet I made to actually show you the mathematics 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 mortgage, or in fact, even much better, simply 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, mortgage calculator, calculator dot XLSX.
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However just go to this URL and after that you'll see all of the files there and then you can just download this file if you want to play with it. But what it does here is in this sort 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 house. It's a 25 percent deposit, so that's the $125,000 that I had actually conserved up, that I 'd spoken about right over there. And then the, uh, loan amount, well, I have the $125,000, I'm going to have to obtain $375,000. It computes it for us and after that I'm going to get a pretty plain vanilla loan.
So, thirty years, it's going to be a 30-year set rate home loan, fixed rate, fixed rate, which indicates the rate of interest will not change. We'll talk about that in a bit. This 5.5 percent that I am paying on Click to find out more my, on the money 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 savings of the interest deduction on my loan? And we'll speak about that in a 2nd, we can overlook it in the meantime. And after that these other things that aren't in brown, you shouldn't mess with these if you actually do open this spreadsheet yourself - how do reverse mortgages work after death.
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So, it's literally the yearly rates of interest, 5.5 percent, divided by 12 and a lot of mortgage loans are compounded on a regular monthly basis. So, at the end of every month they see how much money you owe and after that they will charge you this much interest on that for the month.
It's in fact a pretty intriguing problem. However for a $500,000 loan, well, a $500,000 house, a $375,000 loan over 30 years at a 5.5 percent rates of interest. My home loan payment is going to be approximately $2,100. Now, right when I purchased the house I wish to present a bit of vocabulary and we have actually spoken about this in some of the other videos.
And we're presuming that it's worth $500,000. We are assuming that it deserves $500,000. That is a possession. It's an asset since it provides you future advantage, the future benefit of having the ability to live in it. Now, there's a liability against that possession, that's the home 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 financial obligation and if you were essentially to offer the assets and settle the financial obligation. how do reverse mortgages work after death. If you sell the house you 'd get the title, you can get the cash and then you pay it back to the bank.
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But if you were to unwind this transaction instantly 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 precisely what your initial deposit was however this is your equity.
But you could not assume it's consistent and play with the spreadsheet a little bit. However I, what I would, I'm introducing this due to the fact that as we pay for the debt this number is going to get smaller. So, this number is getting smaller, let's state at some point this is only $300,000, then my equity is going to get larger.
Now, what I have actually done here is, well, really prior to I get to the chart, let me in fact show you how I calculate the chart and I do this over the course of 30 years and it passes month. So, so you can picture that there's actually 360 rows here on the actual spreadsheet and you'll see that if you go and open it https://www.globalbankingandfinance.com/category/news/record-numbers-of-consumers-continue-to-ask-wesley-financial-group-to-assist-in-timeshare-debt-relief/ up.