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What I wish to finish with this video is discuss what a home loan is but I think the majority of us have a least a general sense of it. However even better than that actually go into the numbers and comprehend a bit of what you are really doing when you're paying a home loan, what it's made up of and just how much of it is interest versus how much of it is actually paying for the loan.
Let's state that there is a house that I like, let's say that that is the home that I wish to purchase (why are reverse mortgages bad). It has a price of, let's state that I need to pay $500,000 to buy that house, this is the seller of the house right here.
I want to purchase it. I would like to buy the home. This is me right here - reverse mortgages how they work. And I've had the ability to conserve up $125,000. what is the current interest rate for mortgages. I've had the ability to save up $125,000 however I The original source 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 remainder of the quantity I require for that home, which is essentially $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 job who has a great credit score.
We have to have that title of your house and as soon as you pay off the loan we're going to offer you the title of your house. 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.
However the title of your house, the document that says who actually owns the home, so this is the house title, this is the title of the home, home, home 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, possibly they have not paid off their mortgage, it will go to the bank that I'm borrowing from.
So, this is the security right here. That is technically what a mortgage is. This pledging of the title for, as the, as the security for the loan, that's what a home mortgage is. And really it comes from old French, mort, implies dead, dead, and the gage, indicates promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead promise.
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As soon as I pay off the loan this pledge 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 don't state mort gage. what does it mean when economists say that home buyers are "underwater" on their mortgages?. We state, mortgage.
They're actually describing the home loan, home loan, the mortgage loan. And what I desire to carry out in the rest of this video is utilize a little screenshot from a spreadsheet I made to really reveal you the math or really show you what your home loan payment is going to. And you can download, you can download this spreadsheet at Khan Academy, khanacademy.org/downloads, downloads, slash mortgage calculator, home loan, or actually, even 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 loan calculator, mortgage calculator, calculator dot XLSX.
But just go to this URL and then you'll see all of the files there and then you can simply download this file if you desire to have fun with it. But what it does here remains in this type of dark brown color, these are the presumptions that you might input and that you can change these cells in your spreadsheet without breaking the entire spreadsheet.
I'm purchasing a $500,000 house. It's a 25 percent deposit, so that's the $125,000 that I had saved up, that I 'd discussed right there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to need to borrow $375,000. It calculates it for us and after that I'm going to get a quite plain vanilla loan.
So, thirty years, it's going to be a 30-year fixed rate home loan, repaired rate, repaired rate, which means the rate of interest will not 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 throughout the thirty years.
Now, this little tax rate that I have here, this is to actually figure out, what is the tax savings of the interest deduction on my loan? And we'll speak about that in a second, we can overlook it in the meantime. And then these other things that aren't in brown, you should not mess with these if you in fact do open up this spreadsheet yourself.
So, it's literally the yearly rates of interest, 5.5 percent, divided by 12 and most mortgage are intensified on a monthly basis. So, at the end of each month they see just how much cash you owe and then they will charge you this much interest on that for the month.
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It's really a quite fascinating 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 mortgage payment is going to be approximately $2,100. Now, right when I purchased your home I wish 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's worth $500,000. That is a property. It's a possession due to the fact that it gives you future advantage, the future benefit of being able to live in it. Now, there's a liability versus that possession, that's the mortgage, 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 offer the possessions and pay off the financial obligation. If you offer your home you 'd get the title, you can get the cash and after that you pay it back to the bank.
But if you were to unwind this deal right away after doing it then you would have, you would have a $500,000 house, you 'd settle your $375,000 in debt http://sethvvwc455.trexgame.net/what-does-which-of-the-following-is-not-true-about-mortgages-do and you would get in your pocket $125,000, which is exactly what your initial deposit was however this is your equity.