Bank, can you provide me the rest of the amount I need for that house, which is basically $375,000 (explain how mortgages 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 says, sure, you look like, uh, uh, a great man with a great job who has a great credit ranking.
We have to have that title of your home and as soon as you pay off the loan we're going to offer 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 - explain how mortgages work.
But the title of your home, the document that states who really owns your house, so this is the house title, this is the title of your home, 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, perhaps they haven't settled their mortgage, it will Helpful resources 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. And actually it comes from old French, mort, means dead, dead, and the gage, implies promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.
Once I pay off the loan this pledge 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 home loan. And probably due to the fact that it originates from old French is the reason why we don't state mort gage. We state, home mortgage.
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They're really referring to the home loan, home loan, the mortgage. And what I desire to carry out in the rest of this video is use a little screenshot from a spreadsheet I made to really show you the mathematics 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 mortgage calculator, home loan, or actually, even better, simply go to the download, just go to the downloads, downloads, uh, folder on your web internet browser, you'll see a bunch of files and it'll be the file called home loan calculator, mortgage calculator, calculator dot XLSX.
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 want to have fun with it. how do down payments work on mortgages. However what it does here is in this sort of dark brown color, these are the presumptions that you might input which you can change these cells in your spreadsheet without breaking the entire 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 conserved 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 have to obtain $375,000. It computes it for us and then I'm going to get a quite plain vanilla loan.
So, 30 years, it's going to be a 30-year set rate home mortgage, repaired rate, fixed rate, which indicates the rate of interest will not 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 alter over the course of the 30 years.
Now, this little tax rate that I have here, this is to actually find out, what is the tax cost savings of the interest reduction on my loan? And we'll discuss that in a second, we can overlook it for now. how do business mortgages work. And then these other things that aren't in brown, you should not tinker these if you really do open this spreadsheet yourself.
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So, it's actually the yearly rate of interest, 5.5 percent, divided by 12 and many mortgage loans are compounded on a monthly basis. So, at the end of each month they see how much cash you owe and after that they will charge you this much interest on that for the month.
It's really a quite fascinating issue. But for a $500,000 loan, well, a $500,000 house, a $375,000 loan over 30 years at a 5.5 percent rates of interest. My home mortgage payment is going to be roughly $2,100. Now, right when I bought the house I want to introduce a bit of vocabulary and we've spoken about this in some of the other videos.
And we're assuming that it's worth $500,000. We are presuming 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 having the ability to live in it. Now, there's a liability versus that property, that's the mortgage, that's the $375,000 liability, $375,000 loan or financial obligation.
If this was all of your assets and this is all of your debt and if you were basically to offer the assets and settle the financial obligation. If you sell the home you 'd get the title, you can get the cash and after that you pay it back to the bank.
However if you were to relax this deal instantly after doing it then you would have, you would have a $500,000 home, you 'd pay off your $375,000 in debt and you would get in your pocket $125,000, which is exactly what your original down payment was but this is your equity.
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However you might not assume it's continuous and play with the spreadsheet a bit. But I, what I would, I'm presenting this since as we pay down the debt this number is going to get smaller. So, this number is getting smaller, let's say 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, really before I get to the chart, let me in fact reveal you how I determine the chart and I do this throughout 30 years and it passes month. So, so you can envision that there's really 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
So, on month absolutely no, which I don't reveal here, you borrowed $375,000. Now, throughout that month they're going to wes hall attorney nashville tn charge you 0.46 percent interest, bear 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, instead of owing $375,000 at the end of the first month I owe $376,718. Now, I'm a great guy, I'm not going to default on my home loan so I make that very first home mortgage payment that we computed, that we calculated right over here (reverse mortgages how do they work).