Bank, can you lend me the rest of the quantity I need for that house, which is basically $375,000 (what are reverse mortgages and how do they 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 seem like, uh, uh, a nice person with an excellent job who has a great credit ranking.
We have to have that title of the house and when you settle the loan we're going to provide you the title of your 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 - how does chapter 13 work with mortgages.
However the title of your house, the document that says who in fact owns your home, so this is the home title, this is the title of the house, 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, maybe they haven't paid off 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 home mortgage is. This pledging of the title for, as the, as the security for the sirius radio cancellation loan, that's what a home loan is. And really it originates from old French, mort, suggests dead, dead, and the gage, implies promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead pledge.
As soon as I settle 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 because it originates from old French is the reason we do not state mort gage. We state, mortgage.
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They're actually describing the home mortgage, home loan, the mortgage loan. And what I want to carry out in the rest of this video is use a little screenshot from a spreadsheet I made to in fact reveal you the math or in fact show 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 mortgage calculator, home mortgage, or in fact, even better, just go to the download, simply 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, home mortgage calculator, calculator dot XLSX.
But just go to this URL and after that you'll see all of the files there and after that you can just download this file if you wish to have fun with it. how do buy to rent mortgages work. But what it does here remains in this kind of dark brown color, these are the assumptions that you could input and that you can alter 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 conserved up, that I 'd spoken about right there. And then the, uh, loan quantity, well, I have the $125,000, I'm going to have to borrow $375,000. It calculates it for us and after that I'm going to get a pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate mortgage, repaired rate, fixed rate, which indicates the rate 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 throughout the thirty years.
Now, this little tax rate that I have here, this is to in fact find out, what is the tax cost savings of the interest reduction on my loan? And we'll speak about that in a 2nd, we can disregard it in the meantime. how do second mortgages work. And then these other things that aren't in brown, you should not tinker these if you really do open this spreadsheet yourself.
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So, it's actually the yearly interest rate, 5.5 percent, divided by 12 and the majority of mortgage are intensified on a 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 interesting problem. However for a $500,000 loan, well, a $500,000 home, a $375,000 loan over 30 years at a 5.5 percent rates of interest. My home mortgage payment is going to be roughly $2,100. Now, right when I purchased the home I wish to present a bit of vocabulary and we have actually spoken about this in some 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 possession. It's an asset because it offers you future advantage, the future benefit of having the ability to live in it. Now, there's a liability versus that property, that's the home loan, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your properties and this is all of your financial obligation 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 instantly after doing it then you would have, you would have a $500,000 home, you 'd settle your $375,000 in debt and you would get in your pocket $125,000, which is precisely what your initial down payment was but this is your equity.
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But you might not presume it's continuous and have fun 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 financial obligation this number is going to get smaller sized. So, this number is getting smaller, let's state eventually 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 reveal you how I determine the chart and I do this throughout thirty years and it passes month. So, so you can envision 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 zero, which I don't show here, you obtained $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 haven't made any mortgage payments yet.
So, now before I pay any of sell my timeshare fast my payments, instead of owing $375,000 at the end of the first month I owe $376,718. Now, I'm a hero, I'm not going to default on my home loan so I make that first mortgage payment that we computed, that we calculated right over here (how do mortgages work in the us).