Bank, can you lend me the rest of the amount I need for that home, which is basically $375,000 (how reverse 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 guy with a good task who has an excellent credit ranking.
We need to have that title of the home and once you settle 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 - how do buy to let mortgages work uk.
However the title of your house, the file that states who in fact owns the house, so this is the home title, this is the title of your home, home, 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 haven't paid off 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 vowing of the title for, as the, as the security for the loan, that's what a home mortgage is. And really it originates from old French, mort, suggests 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 pay off 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 promise or a home mortgage. And most likely due to the fact that it comes from old French is the reason we don't say mort gage. We state, mortgage.
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They're really describing the mortgage, home loan, the home mortgage 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 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 mortgage calculator, home loan, 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 home loan calculator, home mortgage calculator, calculator dot XLSX.
However simply go to this URL and after that you'll see all of the files there and then you can simply download this file if you desire to play with it. reverse mortgages how they work. However what it does here remains in this sort of dark brown color, these are the assumptions that you might input which you can change these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying a $500,000 house. It's a 25 percent deposit, so that's the $125,000 that I had conserved up, that I 'd talked about right 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 after that I'm going to get https://arthurvoza279.wordpress.com/2020/09/03/the-single-strategy-to-use-for-how-do-reverse-mortgages-work-wikipedia/ a quite plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate home mortgage, fixed rate, repaired rate, which indicates the interest rate will not change. 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 change over the course of the 30 years.
Now, this little tax rate that I have here, this is to actually figure out, what is the tax cost savings of the interest deduction on my loan? And we'll discuss that in a second, we can disregard it for now. reverse mortgages how do they work. And then these other things that aren't in brown, you shouldn't tinker these if you in world financial group wfg hear my story fact do open this spreadsheet yourself.
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So, it's literally the yearly rate of interest, 5.5 percent, divided by 12 and the majority of home loan are intensified on a month-to-month basis. So, at the end of each month they see how much cash you owe and then they will charge you this much interest on that for the month.
It's really a quite interesting problem. But 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 little bit of vocabulary and we've discussed 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 an asset. It's an asset since it provides you future advantage, the future advantage of having the ability to reside in it. Now, there's a liability versus that property, that's the home 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 basically to sell the assets and settle the financial obligation. If you sell your 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 relax this deal immediately after doing it then you would have, you would have a $500,000 home, you 'd pay off your $375,000 in financial obligation and you would get in your pocket $125,000, which is precisely what your initial down payment was however this is your equity.
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However you could not assume it's constant and play with the spreadsheet a little bit. But I, what I would, I'm introducing this due to the fact that as we pay down the debt this number is going to get smaller sized. So, this number is getting smaller sized, let's say at some time this is only $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, really prior to I get to the chart, let me actually reveal you how I calculate the chart and I do this over the course of thirty years and it goes by month. So, so you can imagine that there's really 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 show 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 haven't made any home mortgage payments yet.
So, now before I pay any of my payments, instead of owing $375,000 at the end of the very first month I owe $376,718. Now, I'm a hero, I'm not going to default on my mortgage so I make that first home loan payment that we determined, that we computed right over here (how do buy to rent mortgages work).