Let's state that there is a home that I like, let's state that that is your home that I want to acquire. It has a price of, let's say that I require to pay $500,000 to purchase that home, this is the seller of your house right here.
I want to buy it. I want to buy the home. This is me right here. And I have actually been able to conserve up $125,000. I have actually had the ability to conserve up $125,000 but I would actually 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 need for that house, 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 good person with an excellent job who has an excellent credit rating.
We have to have that title of your house and once you settle the loan we're going to provide you the title of your house. So what's going to take place 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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But the title of your home, the file that says who really https://www.timeshareexitcompanies.com/wesley-financial-group-reviews/ owns your house, so this is the home 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, perhaps they have not 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 mortgage is. This promising of the title for, as the, as the security for the loan, that's what a home loan is. how do reverse mortgages work after death. And really it originates from old French, mort, suggests dead, dead, and the gage, means promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.
As soon as I settle the loan this promise of the title to the bank will pass away, it'll come back to me. Which's why it's called a dead pledge or a mortgage. And probably because it comes from old French is the reason we do not state mort gage. We state, mortgage.
They're actually referring to the home loan, home mortgage, the home loan. And what I wish 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 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 loan calculator, home mortgage, or really, even much better, simply 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 loan calculator, calculator dot XLSX.
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However simply go to this URL and then you'll see all of the files there and then you can just download this file if you wish to play with it. But what it does here remains in this type of dark brown color, these are the presumptions that you could input and that you can change these cells in your spreadsheet without breaking the whole spreadsheet.
I'm purchasing 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 talked 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 determines it for us and after that I'm going to get a pretty plain vanilla loan.
So, thirty years, it's going to be a 30-year set rate home loan, repaired rate, repaired rate, which indicates the rate of interest won't change. We'll speak about that in a little bit. This 5.5 percent that I am paying on my, on the money that I obtained will not change throughout the 30 years.
Now, this little tax rate that I have here, this is to really determine, what is the tax savings of the interest deduction on my loan? And we'll talk about that in a 2nd, we can disregard it in the meantime. And after that these other things that aren't in brown, you should not mess with these if you really do open up this spreadsheet yourself - how mortgages work.
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So, it's literally the annual rate of interest, 5.5 percent, divided by 12 and most mortgage are compounded on a monthly basis. So, at the end of monthly they see just how much money you owe and then they will charge you this much interest on that for the month.
It's actually a quite fascinating problem. But for a $500,000 loan, well, a $500,000 home, a $375,000 loan over 30 years at a 5.5 percent interest rate. My home loan payment is going to be approximately $2,100. Now, right when I bought the house I want to introduce a bit of vocabulary and we've discussed this in a few of the other videos.
And we're assuming that it's worth $500,000. We are assuming that it deserves $500,000. That is an asset. It's a possession because it offers you future advantage, the future benefit of being able to reside in it. Now, there's a liability versus that possession, that's the mortgage, 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 debt and if you were basically to offer the assets and settle the debt. how do mortgages work in canada. If you offer your house you 'd get the title, you can get the money and then you pay it back to the bank.
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However if you were to relax this transaction immediately after doing it then you would have, you would have a $500,000 house, you 'd pay off your $375,000 in financial obligation and you would get in your pocket $125,000, which is exactly what your original down payment was but this is your equity.
But you might not assume it's consistent and play with the spreadsheet a bit. However I, what I Article source would, I'm introducing this because as we pay down the debt this number is going to get smaller. So, this number is getting smaller, let's state at some time this is only $300,000, then my equity is going to get larger.
Now, what I have actually done here is, well, really prior to I get to the chart, let me in fact reveal you how I compute the chart and I do this throughout 30 years and it passes month. So, so you can picture that there's in fact 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.