Let's state that there is a home that I like, let's state that that is your house that I wish to acquire. It has a rate tag of, let's say that I need to pay $500,000 to buy that house, this is the seller of your home right here.
I want to buy it. I want to buy the house. This is me right here. And I have actually been able to conserve up $125,000. I've had the ability to conserve up $125,000 however I would really like to live in that house 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 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 Additional resources look like, uh, uh, a good person with a good task who has a great credit score.
We need to have that title of your home and once you pay off the loan we're going to give you the title of your home. So what's going to happen 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 home, the document that says who actually owns your home, so this is the home title, this is the title of the house, house, home 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, maybe they haven't 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 mortgage is. This vowing of the title for, as the, as the security for the loan, that's what a home mortgage is. how do reverse mortgages work in california. And really it comes from old French, mort, suggests dead, dead, and the gage, indicates pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates 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 promise or a home mortgage. And most likely because it comes from old French is the reason we do not say mort gage. We say, home loan.
They're truly referring to the home loan, mortgage, the mortgage loan. And what I desire to perform in the rest of this video is utilize a little screenshot from a spreadsheet I made to actually reveal you the mathematics or in fact reveal 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 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 mortgage calculator, home loan calculator, calculator dot XLSX.
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However simply go to this URL and after that you'll see all of the files there and then you can simply download this file if you want to play with it. But what it does here remains in this type of dark Click here brown color, these are the presumptions that you could input which you can change 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 actually saved up, that I 'd talked about right there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to need to obtain $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 fixed rate mortgage, fixed rate, repaired rate, which implies the rates of interest won't alter. We'll discuss that in a little bit. This 5.5 percent that I am paying on my, on the cash that I borrowed will not alter throughout the thirty years.
Now, this little tax rate that I have here, this is to in fact figure out, what is the tax cost savings of the interest reduction on my loan? And we'll talk about that in a second, we can disregard it in the meantime. And after that these other things that aren't in brown, you shouldn't mess with these if you in fact do open up this spreadsheet yourself - how reverse mortgages work.
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So, it's actually the annual rate of interest, 5.5 percent, divided by 12 and the majority of mortgage are intensified on a monthly basis. So, at the end of on a monthly basis they see how much money you owe and then they will charge you this much interest on that for the month.
It's really a pretty intriguing problem. But for a $500,000 loan, well, a $500,000 home, 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 your home I desire to present a bit of vocabulary and we've spoken about this in a few of the other videos.
And we're presuming that it deserves $500,000. We are presuming that it deserves $500,000. That is a possession. It's a property because it provides you future benefit, the future advantage of having the ability to reside 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 financial obligation.
If this was all of your properties and this is all of your financial obligation and if you were essentially to offer the properties and settle the financial obligation. how do assumable mortgages work. If you sell your home you 'd get the title, you can get the money and after that you pay it back to the bank.
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However 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 deposit was but this is your equity.
But you might not assume it's continuous and have fun with the spreadsheet a bit. But I, what I would, I'm presenting this due to the fact that as we pay for the debt this number is going to get smaller. 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 have actually done here is, well, actually prior to I get to the chart, let me actually show you how I compute the chart and I do this over the course of 30 years and it passes 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.