Bank, can you provide me the rest of the amount I need for that home, which is basically $375,000 (how do down payments work on mortgages). 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 nice man with an excellent job who has a good credit ranking.
We need to have that title of your house and as soon as you settle the loan we're going to give you the title of the home. So what's going to take Look at this website place 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 reverse mortgages work.
However the title of the home, the document that says who actually owns the house, 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, possibly they have not paid off their home 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 pledging of the title for, as the, as the security for the loan, that's what a mortgage is. And really it comes from old French, mort, indicates dead, dead, and the gage, implies promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead promise.
When I settle 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 pledge or a home mortgage. And probably due to the fact that it originates from old French is the reason we don't say mort gage. We say, home loan.
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They're really describing the mortgage, 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 in fact reveal you the mathematics or actually 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, simply 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 mortgage calculator, home mortgage calculator, calculator dot XLSX.
However just 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 desire to have fun with it. how do reverse mortgages work. However what it does here remains in this kind of dark brown color, these are the assumptions that you could input and that you can alter these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying a $500,000 house. It's a 25 percent down payment, so that's the $125,000 that I had actually saved up, that I 'd spoken about right over there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to need to obtain $375,000. It computes it for us and after that I'm going to get a pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year set rate home loan, repaired rate, repaired rate, which indicates the rates of interest won't alter. We'll speak about that in a little bit. This 5.5 percent that I Great post to read am paying on my, on the cash that I obtained will not change throughout the 30 years.
Now, this little tax rate that I have here, this is to in fact find 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. how do reverse mortgages work?. And after that these other things that aren't in brown, you shouldn't tinker these if you actually do open this spreadsheet yourself.
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So, it's literally the annual rate of interest, 5.5 percent, divided by 12 and the majority of home loan loans are intensified 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 actually a quite interesting issue. But for a $500,000 loan, well, a $500,000 house, a $375,000 loan over 30 years at a 5.5 percent interest rate. My home loan payment is going to be roughly $2,100. Now, right when I bought the house I desire to present a little bit of vocabulary and we've discussed this in some of the other videos.
And we're presuming that it's worth $500,000. We are presuming that it deserves $500,000. That is an asset. It's a possession due to the fact that it offers you future benefit, the future benefit of being able to live in it. Now, there's a liability against that asset, that's the home 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 debt and if you were essentially to offer the properties and settle the financial obligation. If you sell your house 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 transaction instantly 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 deposit was but this is your equity.
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But you could not presume it's continuous and have fun with the spreadsheet a bit. But I, what I would, I'm presenting this since as we pay for the financial obligation this number is going to get smaller. So, this number is getting smaller sized, let's say at some time this is just $300,000, then my equity is going to get bigger.
Now, what I've done here is, well, really prior to I get to the chart, let me actually reveal you how I compute 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 in fact 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.
So, on month zero, which I do not show here, you borrowed $375,000. Now, over the course of that month they're going to charge you 0.46 percent interest, keep in mind that was 5.5 percent divided by 12. 0.46 percent interest on $375,000 is $1,718.75. So, I haven't made any home loan payments yet.
So, now prior to I pay any of my payments, rather of owing $375,000 at the end of the first month I owe $376,718. Now, I'm a good guy, I'm not going to default on my home loan so I make that first home mortgage payment that we computed, that we calculated right over here (how do assumable mortgages work).