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There are very stringent laws that were passed in current years that require loan providers do their due diligence to offer you all the alternatives possible to bring your home loan current or exit homeownership with dignity. what are points in mortgages. By comprehending how your home loan works, you can secure your financial investment in your home, and will understand what actions to take if Helpful hints you ever have challenges making the payments.
What I wish to do with this video is describe what a home loan is but I believe most of us have a least a basic sense of it. But even better than that really enter into the numbers and comprehend a little bit of what you are actually doing when you're paying a mortgage, what it's made up of and just how much of it is interest versus how much of it is really paying down the loan.
Let's state that there is a house that I like, let's say that that is the home that I want to purchase. 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 wish to purchase it. I want to purchase your house. This is me right here. And I have actually been able to save 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 rest 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. how to sell 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 nice person with a great job who has a good credit rating.
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 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 your home, the document that states who in fact owns your house, so this is the house title, this is the title of the house, home, home title. It will not go to me. It will go to the bank, the home title will go from the seller, possibly even the seller's bank, possibly 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 loan is. This pledging of the title for, as the, as the security for the loan, that's what a mortgage is. And in fact it comes from old French, mort, implies dead, dead, and the gage, implies 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 pass away, it'll return to me (what does it mean when economists say that home buyers are "underwater" on their mortgages?). Which's why it's called a dead promise or a mortgage. And most likely due to the fact that it originates from old French is the reason that we don't say mort gage. We state, mortgage.
They're truly describing the home mortgage, home mortgage, the mortgage loan. And what I want to perform in the rest of this video is utilize a little screenshot from a spreadsheet I made to really reveal 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 really, 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 mortgage calculator, home mortgage calculator, calculator dot XLSX.
But simply go to this URL and after that you'll see all of the files there and after that you can just download this file if you wish to play with it. However what it does here remains in this sort of dark brown color, these are the presumptions that you might input and that you can change these cells in your spreadsheet without breaking the whole spreadsheet.
I'm buying a $500,000 house. It's a 25 percent down payment, so that's the $125,000 that I had saved up, that I 'd talked about right over there. And then the, uh, loan amount, well, I have the $125,000, I'm going to need to obtain $375,000. It computes it for us and then I'm going to get a quite plain vanilla loan.
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So, thirty years, it's going to be a 30-year fixed rate home loan, fixed rate, fixed rate, which suggests the rate of interest won't change. We'll talk about that in a little bit. This 5.5 percent that https://www.bbb.org/us/tn/franklin/profile/timeshare-advocates/wesley-financial-group-llc-0573-37070239 I am paying on my, on the money that I obtained will not change throughout the thirty 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 neglect it for now. And after that these other things that aren't in brown, you shouldn't mess with these if you really do open this spreadsheet yourself.
So, it's literally the annual interest rate, 5.5 percent, divided by 12 and many mortgage are compounded on a month-to-month basis - how long are mortgages. So, at the end of on a monthly basis they see just how much money you owe and after that they will charge you this much interest on that for the month.
It's actually a quite 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 rates of interest. My home loan payment is going to be roughly $2,100. Now, right when I bought your house I desire to introduce a bit of vocabulary and we have actually talked about this in some of the other videos.
And we're presuming that it's worth $500,000. We are assuming that it deserves $500,000. That is a property. It's a property since it offers you future benefit, the future benefit of being able 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 possessions and this is all of your debt and if you were basically to sell the possessions and settle the financial obligation. If you offer your house you 'd get the title, you can get the cash and then you pay it back to the bank.