Let's state that there is a house that I like, let's state that that is the home that I want to acquire. It has a cost tag 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 wish to buy it. I wish to purchase your home. This is me right here. And I have actually been able to conserve up $125,000. I've had the ability to save up $125,000 but I would really 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 remainder of the amount I require 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 states, sure, you appear like, uh, uh, a great guy with a great task who has a great credit score.
We need to have https://www.inhersight.com/companies/best/reviews/responsiveness?_n=112289636 that title of your home and when you settle the loan we're going to offer you the title of the 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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But the title of your house, the file that states who in fact owns your house, so this is the house title, this is the title of the home, 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, possibly they have not 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 loan is. This vowing of the title for, as the, as the security for the loan, that's what a mortgage is. how do business mortgages work. And in fact it comes from old French, mort, means dead, dead, and the gage, suggests pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead pledge.
When I settle 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 originates from old French is the reason why we don't state mort gage. We state, home mortgage.
They're actually referring to the mortgage, 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 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 actually, even better, just go to the download, just go to the downloads, downloads, uh, folder on your web browser, you'll see a lot of files and it'll be the file called home loan calculator, home loan calculator, calculator dot XLSX.
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However simply go to this URL and then you'll see all of the files there and after that you can simply download this file if you want to have fun with it. However what it does here remains in this sort of dark brown color, these are the assumptions that you might input and that you can change these cells in your spreadsheet without breaking the whole spreadsheet.
I'm buying a $500,000 home. It's a 25 percent down payment, so that's the $125,000 that I had 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 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 mortgage, repaired rate, fixed rate, which means the rates of interest will not alter. 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 alter throughout the 30 years.
Now, this little tax rate that I have here, this is to actually find out, what is the tax cost savings of the interest deduction on my loan? And we'll discuss that in a second, we can ignore it for now. And then these other things that aren't in brown, you shouldn't tinker these if you really do open this spreadsheet yourself - how adjustable rate mortgages work.
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So, it's literally the yearly rate of interest, 5.5 percent, divided by 12 and most home loan are compounded on a regular monthly basis. So, at the end of monthly 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 pretty interesting problem. But for a $500,000 loan, well, a $500,000 home, a $375,000 loan over thirty years at a 5.5 percent rates of interest. My home loan payment is going to https://www.prweb.com/releases/2012/8/prweb9766140.htm be roughly $2,100. Now, right when I bought the home I wish to present a bit of vocabulary and we've discussed this in a few of the other videos.
And we're assuming that it deserves $500,000. We are assuming that it's worth $500,000. That is a possession. It's a property since it provides you future benefit, the future advantage of having the ability to reside in it. Now, there's a liability versus 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 properties and this is all of your financial obligation and if you were basically to offer the properties and settle the debt. how do reverse mortgages work after death. If you sell your 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 relax this deal immediately after doing it then you would have, you would have a $500,000 home, you 'd pay off your $375,000 in financial obligation and you would get in your pocket $125,000, which is precisely what your initial down payment was but this is your equity.
But you might not assume it's constant and have fun with the spreadsheet a bit. But 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 sized. So, this number is getting smaller, 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 before I get to the chart, let me actually show you how I compute the chart and I do this over the course of thirty years and it passes month. So, so you can think of that there's actually 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.