Let's say that there is a house that I like, let's say that that is your house that I would like to buy. It has a cost tag of, let's state that I require to pay $500,000 to purchase that house, this is the seller of the https://www.dandb.com/businessdirectory/wesleyfinancialgroupllc-franklin-tn-88682275.html house right here.
I wish to purchase it. I wish to buy your house. This is me right here. And I have actually been able to save up $125,000. I have actually had the ability to conserve up $125,000 but I would truly like to live 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 lend 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 says, sure, you look like, uh, uh, a nice guy with a good job who has a good credit rating.
We have to have that title of your house and as soon as you pay off the loan we're going to give you the title of the 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.
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However the title of the house, the file that states who actually owns your house, so this is the house title, this is the title of your house, home, home title. It will not go to me. It will go to the bank, the home title will go from the seller, possibly 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 loan is. This promising of the title for, as the, as the security for the loan, that's what a mortgage is. how do assumable mortgages work. And really it originates from old French, mort, suggests dead, dead, and the gage, indicates pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.
When I pay off the loan this promise 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 due to the fact that it comes from old French is the reason that we don't state mort gage. We say, home mortgage.
They're really referring to the home mortgage, home mortgage, the home loan. And what I wish to do in the rest of this video is use a little screenshot from a spreadsheet I made to really show you the math or in fact reveal 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 mortgage calculator, home mortgage, or in fact, even better, simply 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 mortgage calculator, mortgage calculator, calculator dot XLSX.
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But just 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 desire 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 and that you can alter these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying a $500,000 home. It's a 25 percent deposit, so that's the $125,000 that I had conserved up, that I 'd talked about right over there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to need to borrow $375,000. It determines it for us and after that I'm going to get a quite plain vanilla loan.
So, 30 years, it's going to be a 30-year set rate home loan, repaired rate, fixed rate, which means the interest rate will not change. 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 in fact determine, what is the tax cost savings of the interest deduction on my loan? And we'll talk about that in a second, we can ignore it in the meantime. And after that these other things that aren't in brown, you should not mess with these if you actually do open up this spreadsheet yourself - how do reverse mortgages work in california.
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So, it's actually the yearly rates of interest, 5.5 percent, divided by 12 and many home loan are intensified on a regular monthly basis. So, at the end of monthly they see 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 fascinating issue. However for a $500,000 loan, well, a $500,000 house, a $375,000 loan over thirty years at a 5.5 percent rate of interest. My home mortgage payment is going to be approximately $2,100. Now, right when I bought your house I want to present a bit of vocabulary and we have actually discussed this in some of the other videos.
And we're assuming that it's worth $500,000. We are presuming that it deserves $500,000. That is a possession. It's a possession due to the fact that it provides you future advantage, the future benefit of having the ability to live in it. Now, there's a liability against that asset, that's the home Additional hints loan, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your assets and this is all of your debt and if you were basically to sell the assets and pay off the financial obligation. how do fixed rate mortgages work. 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.
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However if you 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 debt and you would get in your pocket $125,000, which is exactly what your initial down payment was however this is your equity.
But you could not presume it's constant and have fun with the spreadsheet a bit. But I, what I would, I'm presenting this since as we pay down the financial obligation this number is going to get smaller. So, this number is getting smaller sized, let's state eventually this is just $300,000, then my equity is going to get larger.
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 throughout 30 years and it goes by month. So, so you can envision that there's really 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.