Let's state that there is a house that I like, let's state that that is your home that I would like to purchase. It has a cost of, let's state that I require to pay $500,000 to buy that house, this is the seller of the house right here.
I would like to purchase it. I want to buy your home. This is me right here. And I have actually been able to save up $125,000. I have actually had the ability to save up $125,000 but I would actually 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 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 says, sure, you appear like, uh, uh, a great man with a great task who has an excellent credit rating.
We have to have that title of your house and when you settle the loan we're going to offer you the title of your 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.
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However the title of your house, the file that says who in fact owns the home, so this is the house title, this is the title of your home, house, house title. It will not go to me. It will go to the bank, the house title will go from the seller, perhaps even the seller's bank, maybe they haven't settled their 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 https://www.prweb.com/releases/2012/8/prweb9766140.htm the title for, as the, as the security for the loan, that's what a home mortgage is. how do business mortgages work. And really it originates from old French, mort, suggests dead, dead, and the gage, indicates promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead promise.
As soon as 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 promise or a home loan. And most likely since it originates from old French is the reason why we don't state mort gage. We say, home mortgage.
They're truly describing the mortgage, home mortgage, the mortgage. And what I wish to carry out in the rest of this video is utilize a little screenshot from a spreadsheet I made to actually reveal you the math or actually 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 mortgage calculator, mortgage, 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, home mortgage calculator, calculator dot XLSX.
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But simply 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 wish to play with it. However what it does here remains in this type of dark brown color, these are the assumptions that you might input which you can change 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 actually saved 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 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 set rate mortgage, fixed rate, repaired rate, which suggests the rate of interest won't alter. We'll discuss that in a 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 30 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 disregard it for now. 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 - how do points work in mortgages.
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So, it's actually the annual rate of interest, 5.5 percent, divided by 12 and most home loan are compounded on a month-to-month basis. So, at the end of each month they see how much cash you owe and then they will charge you this much interest on that for the month.
It's in fact a pretty interesting issue. But for a $500,000 loan, well, a $500,000 home, a $375,000 loan over thirty years at a 5.5 percent interest rate. My home mortgage payment is going to be roughly $2,100. Now, right when I purchased your house I desire to introduce a bit of vocabulary and we've talked 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 a possession. It's a property because it offers you future advantage, the future advantage of having the ability to reside 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 basically to offer the possessions and settle the financial obligation. how do escrow accounts work for mortgages. If you sell the home you 'd get the title, you can get the money and then you pay it back to the bank.
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However if you were to relax this transaction instantly after doing it then you would have, you would have a $500,000 house, you 'd settle your $375,000 in financial obligation and you would get in your pocket https://www.inhersight.com/companies/best/reviews/responsiveness?_n=112289636 $125,000, which is exactly what your original deposit was however this is your equity.
However you could not assume it's continuous and have fun with the spreadsheet a little bit. However I, what I would, I'm presenting this due to the fact that as we pay down the financial obligation this number is going to get smaller sized. So, this number is getting smaller sized, let's state at some time this is only $300,000, then my equity is going to get larger.
Now, what I have actually done here is, well, really before I get to the chart, let me actually show you how I determine the chart and I do this over the course of thirty years and it goes by month. So, so you can imagine that there's really 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.