Bank, can you provide me the remainder of the quantity I require for that house, which is basically $375,000 (reverse mortgages how they 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 task who has a great credit ranking.
We have to have that title of the home and when you settle the loan we're going to provide you the title of your home. 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 home mortgages work.
But the title of your home, the document that states who really owns your home, so this is the house title, this is the title of your house, 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 haven't settled 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 loan is. This promising of the title for, as the, as the security for the loan, that's what a home loan is. And really it originates from old French, mort, means dead, dead, and the gage, implies promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead pledge.
Once I settle the loan this promise of the title to the bank will pass away, it'll return to me. And that's why it's called a dead promise or a mortgage. And most likely since it comes from old French is the reason that we don't state mort gage. We say, home loan.
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They're actually describing the mortgage, home mortgage, the home loan. And what I desire 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 show you what your home 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, mortgage, or actually, even much better, simply go to the download, simply go to the downloads, downloads, uh, folder on your westlake financial services las vegas nv web internet browser, you'll see a bunch of files and it'll be the file called home loan calculator, home loan calculator, calculator dot XLSX.
But just go to this URL and then you'll see all of the files there and then you can just download this file if you desire to play with it. how to reverse mortgages work. But what it does here is in this sort of dark brown color, these are the assumptions that you could input which you can change these cells in your spreadsheet without breaking the whole 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 discussed right over there. And then the, uh, loan quantity, well, I have the $125,000, I'm going to need to borrow $375,000. It calculates it for us and then 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, fixed rate, which suggests the rate of interest won't alter. We'll talk about that in a 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 https://zenwriting.net/repriaogzn/if-the-lender-takes-your-home-in-a-foreclosure-youand-39-ll-also-lose-any-money little tax rate that I have here, this is to actually determine, what is the tax cost savings of the interest reduction on my loan? And we'll talk about that in a second, we can ignore it for now. how do variable mortgages work in canada. And after that these other things that aren't in brown, you should not mess with these if you in fact 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 many home loan are compounded on a month-to-month basis. So, at the end of each month they see how much money you owe and after that they will charge you this much interest on that for the month.
It's really a quite fascinating issue. 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 roughly $2,100. Now, right when I bought your home I wish to introduce a little bit of vocabulary and we've talked about this in some of the other videos.
And we're assuming that it's worth $500,000. We are assuming that it's worth $500,000. That is a possession. It's a property due to the fact that it offers you future advantage, the future benefit of being able to live in it. Now, there's a liability against that possession, that's the mortgage 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 debt and if you were essentially to offer the assets and settle the debt. If you sell the home you 'd get the title, you can get the cash and then you pay it back to the bank.
However if you were to unwind this transaction right away after doing it then you would have, you would have a $500,000 house, you 'd pay off your $375,000 in debt and you would get in your pocket $125,000, which is precisely what your original down payment was but this is your equity.
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But you could not assume it's continuous and have fun with the spreadsheet a little bit. But I, what I would, I'm presenting 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 point this is only $300,000, then my equity is going to get larger.
Now, what I have actually done here is, well, in fact prior to I get to the chart, let me in fact reveal you how I determine the chart and I do this over the course of 30 years and it goes by month. So, so you can envision that there's actually 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 don't reveal 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 have not made any mortgage payments yet.
So, now prior to I pay any of my payments, rather of owing $375,000 at the end of the very first month I owe $376,718. Now, I'm an excellent person, I'm not going to default on my home loan so I make that first home loan payment that we calculated, that we computed right over here (reverse mortgages how do they work).