Bank, can you lend me the remainder of the amount 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 says, sure, you look like, uh, uh, a nice person with an excellent task who has an excellent credit score.
We need to have that title of your house and when you settle the loan we're going to provide 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 - how do home mortgages work.
But the title of your house, the document that says who in fact owns your house, so this is the house title, this is the title of your house, house, home title. It will not go to me. It will go to the bank, the home title will go from the seller, perhaps even the seller's bank, maybe they haven't paid off 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 mortgage is. This promising of the title for, as the, as the security for the loan, that's what a home mortgage is. And in fact it comes from old French, mort, means dead, dead, and the gage, indicates promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead pledge.
When I settle the loan this promise of the title to the bank will pass away, it'll return to me. Which's why it's called a dead promise or a mortgage. And probably because it originates from old French is the reason that we do not say mort gage. We state, home mortgage.
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They're actually describing the mortgage, home mortgage, the home loan. And what I wish to do in the rest of this video is use a little screenshot from a spreadsheet I made to actually show you the math or in fact reveal you what your 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 better, just go to the download, simply 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, mortgage calculator, calculator dot XLSX.
But simply go to this URL and after that you'll see all of the files there and then you can just download this file if you desire to have fun with it. how do fixed rate mortgages work. But what it does here is in this kind of dark brown color, these are the assumptions that you could input which you can alter these cells in your spreadsheet without breaking the whole spreadsheet.
I'm buying a $500,000 home. It's a 25 percent down payment, so that's the $125,000 that I had saved up, that I 'd spoken about right over there. And then the, uh, loan quantity, well, I have the $125,000, I'm going to have to borrow $375,000. It calculates it for us and then I'm going to get a pretty plain vanilla loan.
So, thirty years, it's going to be a 30-year fixed rate home mortgage, repaired rate, fixed rate, which means the rate of interest won't change. We'll speak Discover more about that in a bit. This 5.5 percent that I am paying on my, on the cash that I obtained will not change throughout the 30 years.
Now, this little tax rate that I have here, this is to actually find out, what is the tax savings of the interest reduction on my loan? And we'll talk about that in a 2nd, we can ignore it for now. how do reverse mortgages really 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 annual interest rate, 5.5 percent, divided by 12 and many home loan loans are compounded on a month-to-month basis. 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 in fact a quite interesting issue. But for a $500,000 loan, well, a $500,000 house, a $375,000 loan over 30 years at a 5.5 percent interest rate. My home mortgage payment is going to be approximately $2,100. Now, right when I purchased your home I wish to present a bit of vocabulary and we've spoken about this in a few of the other videos.
And we're assuming that it's worth $500,000. We are assuming that it deserves $500,000. That is an asset. It's a property due to the fact that it offers you future benefit, the future advantage of having the ability to reside in it. Now, there's a liability versus that possession, that's the home loan, http://knoxxmws426.tearosediner.net/h1-style-clear-both-id-content-section-0-the-9-minute-rule-for-how-does-chapter-13-work-with-mortgages-h1 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 possessions and pay off the financial obligation. If you offer your 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 unwind 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 debt and you would get in your pocket $125,000, which is exactly what your original deposit was however this is your equity.
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However you might not assume it's constant and have fun with the spreadsheet a little bit. However I, what I would, I'm presenting this since as we pay for the financial obligation this number is going to get smaller sized. So, this number is getting smaller sized, let's state eventually this is only $300,000, then my equity is going to get bigger.
Now, what I've done here is, well, in fact before I get to the chart, let me actually reveal you how I determine the chart and I do this throughout 30 years and it goes by month. So, so you can picture 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 absolutely no, which I do not show here, you borrowed $375,000. Now, over the course of that month they're going to charge you 0.46 percent interest, remember 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 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 person, I'm not going to default on my home mortgage so I make that first home loan payment that we determined, that we determined right over here (how does chapter 13 work with mortgages).