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There are really stringent laws that were passed in recent years that need lenders do their due diligence to provide you all the choices possible to bring your home mortgage existing or exit homeownership with dignity. what is the interest rate for mortgages. By understanding how your mortgage works, you can secure your financial investment in your home, and will understand what actions to take if you ever have challenges making the payments.
What I wish to do with this video is describe what a mortgage is but I believe many of us have a least a basic sense of it. However even much better than that really go into the numbers and understand a little bit of what you are actually doing when you're paying a mortgage, what it's made up of and how much of it is interest versus how much of it is in fact paying for the loan.
Let's state that there is a home that I like, let's state that that is your house that I wish to buy. It has a cost 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 wish to buy it. I would like to purchase your house. This is me right here. And I've had the ability to save up $125,000. I have actually been able to conserve up $125,000 however I would really like to reside in that house so I go to a bank, I go to a bank, get a brand-new color for the bank, so that is the bank right there.
Bank, can you lend me the rest of the amount I need for that house, which is essentially $375,000. I'm putting 25 percent down, this right, this right, this number right here, that is 25 percent of $500,000. what is the interest rate for mortgages. 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 man with a great job who has an excellent credit score.
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 home. 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 the home, the file that says who really owns the house, so this is the house title, this is the title of the home, home, house title. It will not go to me. It will go to the bank, the house title will go from the seller, possibly even the seller's bank, possibly they have not settled their home loan, 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 comes from old French, mort, indicates dead, dead, and the gage, suggests pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead promise.
As soon as I settle the loan this promise of the title to the bank will die, it'll come back to me (why do mortgages get sold). And that's why it's called a dead promise or a mortgage. And probably since it comes from old French is the reason that we don't state mort gage. We state, mortgage.
They're truly describing the mortgage, home loan, the home loan. And what I wish to carry out in the rest of this video is use a little screenshot from a spreadsheet I made to in fact show you the mathematics or in fact show 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 actually, even better, just 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, home loan 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 desire to play with it. However what it does here remains in this sort of dark brown color, these are the assumptions that you could input which you can alter these cells in your spreadsheet without breaking the entire spreadsheet.
I'm purchasing a $500,000 home. It's a 25 percent deposit, so that's the $125,000 that I had actually conserved up, that I 'd talked about right there. And then the, uh, loan quantity, well, I have the $125,000, I'm going to need to borrow $375,000. It computes it for us and then I'm going to get a pretty plain vanilla loan.
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So, 30 years, it's going to be a 30-year set rate home loan, repaired rate, fixed rate, which means the interest rate won't alter. We'll talk about that in a little bit. This 5.5 percent that I am paying on my, on the cash that I borrowed will not alter over the course of the thirty years.
Now, this little tax rate that I have here, this is to really find out, what is the tax savings of the interest reduction on my loan? And we'll discuss that in a 2nd, we can neglect it for now. And after that these other things that aren't in brown, you shouldn't tinker these if you actually do open this spreadsheet yourself.
So, it's literally the annual interest rate, 5.5 percent, divided by 12 and the majority of mortgage are compounded on a month-to-month basis - https://www.bbb.org/us/tn/franklin/profile/timeshare-advocates/wesley-financial-group-llc-0573-37070239 how to sell mortgages. So, at the end of monthly they see how randy mcvay much money you owe and then they will charge you this much interest on that for the month.
It's in fact a quite fascinating problem. 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 mortgage payment is going to be roughly $2,100. Now, right when I purchased your home I want to introduce a bit of vocabulary and we've spoken about this in some of the other videos.
And we're presuming that it's worth $500,000. We are assuming that it's worth $500,000. That is a possession. It's an asset because 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 home mortgage loan, 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 properties and settle the debt. 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.