Let's state that there is a home that I like, let's say that that is the house that I wish to buy. It has a price of, let's say that I need to pay $500,000 to purchase that house, this is the seller of the home right here.
I would like to purchase it. I would like to buy your house. This is me right here. And I have actually been able to save up $125,000. I've been able to conserve up $125,000 however I would truly like to reside 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 rest of the amount 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 says, sure, you look like, uh, uh, a good guy with an excellent task who has an excellent credit score.
We need to have that title of the house and as soon as you settle the loan we're going to give you the title of the house. 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.
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However the title of your home, the file that says who in fact owns the house, 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 house title will go from the seller, possibly even the seller's bank, possibly they haven't settled their home mortgage, it will go to the bank that I'm obtaining from.
So, this is the security right here. That is technically what a home mortgage is. This promising of the title for, as the, as the security for the loan, that's what a home mortgage is. how do second mortgages work in ontario. And actually it comes from old French, mort, suggests dead, dead, and the gage, indicates pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead promise.
Once I pay off the loan this promise of the title to the bank will die, it'll return 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 factor why we don't say mort gage. We say, home loan.
They're truly referring to the home loan, mortgage, the mortgage. And what I wish to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to really reveal you the math 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 loan calculator, home loan, or really, even better, simply go to the download, just go to the downloads, downloads, uh, folder on your web internet browser, you'll see a lot of files and it'll be the file called mortgage calculator, mortgage calculator, calculator dot XLSX.
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But just go to this URL and after that you'll see all of the files there and then you can simply download this file if you desire to play with it. However what it does here remains in this kind of dark brown color, these are the presumptions that you might input and that you can alter these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying a $500,000 home. It's a 25 percent down payment, so that's the $125,000 that I had actually saved up, that I 'd talked about right there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to have to obtain $375,000. It determines it for us and after that I'm going to get a quite plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate mortgage, fixed rate, fixed rate, which suggests the interest rate will not change. We'll talk about that in a bit. This 5.5 percent that I am paying on my, on the cash that I borrowed will not change throughout the thirty years.
Now, this little tax rate that I have here, this is to really determine, 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 for now. And after that these other things that aren't in brown, you shouldn't mess with these if you really do open up this spreadsheet yourself - how do arm mortgages work.
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So, it's literally the yearly rate of interest, 5.5 percent, divided by 12 and many mortgage are intensified on a month-to-month basis. So, at the end of monthly they see just how much money you owe and then 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 rates of interest. My home mortgage payment is going to be approximately $2,100. Now, right when I purchased the home I want to introduce a 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 presuming that it deserves $500,000. That is an asset. It's a possession since it offers you future benefit, the future benefit of being able https://apnews.com/Globe%20Newswire/8d0135af22945c7a74748d708ee730c1 to reside in it. Now, there's a liability against that possession, that's the home mortgage loan, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your assets and this is all of your financial obligation and if you were essentially to sell the assets and settle the financial obligation. what are reverse mortgages and how do they work. If you sell your home you 'd get the title, you can get the cash and then you pay it back to the bank.
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However if you were to relax this deal right away after doing it then you would have, you would have a $500,000 home, you 'd settle your $375,000 in financial obligation https://www.globalbankingandfinance.com/category/news/record-numbers-of-consumers-continue-to-ask-wesley-financial-group-to-assist-in-timeshare-debt-relief/ and you would get in your pocket $125,000, which is precisely what your initial down payment was but this is your equity.
However you might not assume it's constant and have fun with the spreadsheet a bit. But I, what I would, I'm presenting this due to the fact that as we pay for the financial obligation this number is going to get smaller. So, this number is getting smaller, let's state eventually this is just $300,000, then my equity is going to get larger.
Now, what I've done here is, well, really before I get to the chart, let me really show you how I calculate the chart and I do this throughout thirty years and it goes by month. So, so you can imagine that there's actually 360 rows here on the real spreadsheet and you'll see that if you go and open it up.