Bank, can you lend me the remainder of the quantity I require for that house, which is essentially $375,000 (explain how mortgages 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 states, sure, you appear like, uh, uh, a great person with an excellent job who has a good credit ranking.
We have to have that title of your home and once you settle the loan we're going to give 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 - how do business mortgages work.
However the title of your house, the file that says who actually owns the home, 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 house title will go from the seller, possibly even the seller's bank, possibly they haven't 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 mortgage is. And actually it comes from old French, mort, means dead, dead, and the gage, implies pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead pledge.
Once I pay off the loan this pledge of the title to the bank will die, it'll return 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 that we don't state mort gage. We say, home loan.
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They're actually referring to the mortgage, home loan, the mortgage. And what I want to carry out in the rest of this video is utilize a little screenshot from a spreadsheet I made to actually show you the math or really 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 home loan calculator, mortgage, or in fact, even much better, just go to the download, just More help go to the downloads, downloads, uh, folder on your web internet browser, you'll see a bunch of files and it'll be the file called home loan calculator, mortgage calculator, calculator dot XLSX.
However simply 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 want to have fun with it. how do second mortgages work in ontario. However what it does here is in this kind of dark brown color, these are the assumptions that you could input and that 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 down payment, so that's the $125,000 that I had saved up, that I 'd spoken about right over there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to have to obtain $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, fixed rate, fixed rate, which indicates the rates of interest will not change. We'll discuss that in a little bit. This 5.5 percent that I am paying on my, on the money that I borrowed will not change 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 reduction on my loan? And we'll speak about that in a 2nd, we can disregard it for now. reverse mortgages how they 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 literally the annual rates of interest, 5.5 percent, divided by 12 and the majority of home loan are intensified on a regular monthly basis. So, at the end of monthly they see just 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 quite interesting problem. However for a $500,000 loan, well, a $500,000 house, a $375,000 loan over 30 years at a 5.5 percent rate of interest. My home loan payment is going to be approximately $2,100. Now, right when I purchased the house I wish to present a bit of vocabulary and we have actually talked about this in some of the other videos.
And we're presuming that it deserves $500,000. We are assuming that it deserves $500,000. That is an asset. It's an asset due to the fact that it gives you future advantage, the future benefit of being able to reside in it. Now, there's a liability versus 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 debt. If you sell your home you 'd get the title, you can get the cash and then you pay it back to the bank.
However if you Extra resources were to relax this deal right away 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 initial down payment was but this is your equity.
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But you could not assume it's consistent and have fun with the spreadsheet a little bit. However I, what I would, I'm presenting this since as we pay for the financial obligation this number is going to get smaller sized. So, this number is getting smaller sized, let's state at some point this is only $300,000, then my equity is going to get bigger.
Now, what I've done here is, well, in fact prior to I get to the chart, let me actually reveal you how I calculate the chart and I do this over the course of 30 years and it goes by month. So, so you can think of that there's actually 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
So, on month no, which I do not reveal here, you obtained $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 mortgage payments yet.
So, now before I pay any of 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 mortgage so I make that first mortgage payment that we calculated, that we calculated right over here (how do 2nd mortgages work).