Bank, can you lend me the remainder of the quantity I require for that home, which is essentially $375,000 (how do reverse mortgages work after death). 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 look like, uh, uh, a nice guy with a good task who has an excellent credit rating.
We need to have that title of your 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 - how do fixed rate mortgages work.
But the title of your house, the file that says who really owns your 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 home title will go from the seller, maybe even the seller's bank, perhaps 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 home mortgage is. This vowing of the title for, as the, as the security for the loan, that's what a home loan is. And in fact it originates from old French, mort, implies dead, dead, and the gage, indicates pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead promise.
Once I settle the loan this pledge of the title to the bank will pass away, it'll come back to me. Which's why it's called a dead pledge or a home loan. And probably since it originates from old French is the reason why we don't state mort gage. We say, home loan.
How To American Mortgages Work for Beginners
They're actually referring to the mortgage, mortgage, the mortgage loan. And what I wish to do in the rest of this video is use a little screenshot from a spreadsheet I made to in fact reveal you the mathematics or really show 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 mortgage calculator, home mortgage, or in fact, even much better, just 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 home mortgage calculator, home mortgage calculator, calculator dot XLSX.
But simply 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 wish to play with it. obtaining a home loan and how mortgages work. 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 purchasing a $500,000 home. It's a 25 percent deposit, so that's the $125,000 that I had saved up, that I 'd discussed right over there. And then the, uh, loan amount, well, I have the $125,000, I'm going to have to borrow $375,000. It determines 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 set rate home mortgage, fixed rate, fixed rate, which suggests the rates of interest won't alter. We'll speak about that in a little bit. This 5.5 percent that I am paying on my, on the money that I obtained will not alter over the course of the thirty years.
Now, this little tax rate that I have here, this is to actually determine, what is the tax http://zionxnxm788.wpsuo.com/h1-style-clear-both-id-content-section-0-how-do-variable-apr-work-in-a-mortgages-well-fargo-things-to-know-before-you-buy-h1 cost savings of the interest reduction on my loan? And we'll speak about that in a 2nd, we can overlook it for now. how adjustable rate mortgages work. And then these other things that aren't in brown, you should not mess with these if you actually do open up 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 mortgage are intensified on a month-to-month basis. So, at the end of on a monthly basis they see 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 fascinating 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 loan payment is going to be roughly $2,100. Now, right when I purchased your home I want to present a little bit of vocabulary and we have actually 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 an asset. It's an asset since it provides you future advantage, the future advantage of being able to live in it. Now, there's a liability versus that property, that's the mortgage, 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 basically to sell the properties and pay off the financial obligation. If you sell the house you 'd get the title, you can get the money and after that you pay it back to the bank.
However if you were to unwind this transaction immediately after doing it then you would have, you would have a $500,000 home, you 'd settle your $375,000 in financial obligation and you would get in your pocket $125,000, which is exactly what your original down payment was but this is your equity.
Unknown Facts About How Do 2nd Mortgages Work
However you might not assume it's constant and have fun with the spreadsheet a little bit. But I, what I would, I'm presenting this due to the fact that as we pay for the debt this number is going to get smaller sized. So, this number is getting smaller sized, let's state eventually this is just $300,000, then my equity is going to get bigger.
Now, what I've done here is, well, actually prior to I get to the chart, let me really reveal you how I Great post to read compute the chart and I do this throughout 30 years and it passes month. So, so you can imagine 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 no, which I don't reveal here, you borrowed $375,000. Now, throughout 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 mortgage payments yet.
So, now prior to I pay any of my payments, instead of owing $375,000 at the end of the very first month I owe $376,718. Now, I'm a hero, I'm not going to default on my home mortgage so I make that first home mortgage payment that we determined, that we computed right over here (explain how mortgages work).