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There are extremely strict laws that were passed in current years that need loan providers do their due diligence to give you all the alternatives possible to bring your mortgage existing or exit homeownership gracefully. non-federal or chartered banks who broker or lend for mortgages must be registered with. By understanding how your home loan works, you can protect your financial investment in your house, and will know what actions to take if you ever have difficulties making the payments.
What I wish to do with this video is discuss what a home loan is however I think the majority of us have a least a basic sense of it. But even much better than that actually go into the numbers and comprehend a bit of what you are actually doing when you're paying https://www.chamberofcommerce.com/united-states/tennessee/franklin/resorts-time-share/1340479993-wesley-financial-group a home mortgage, what it's made up of and just how much of it is interest versus how much of it is in fact paying for the loan.
Let's say that there is a home that I like, let's say that that is your house that I wish to purchase. It has a price of, let's state that I require to pay $500,000 to purchase that house, this is the seller of your home right here.
I wish to buy it. I would like to buy your home. This is me right here. And I have actually been able to save up $125,000. I have actually had the ability to save up $125,000 however I would truly like to reside in that home 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 quantity I require for that home, 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. what are reverse 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 appear like, uh, uh, a great guy with a good job who has a great credit rating.
We need to have that title of the home and when you pay off the loan we're going to offer you the title of the house. So what's going to occur 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 says who really owns your house, so this is the house title, this is the title of the house, house, house 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, maybe they have not 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 vowing of the title for, as the, as the security for the loan, that's what a home loan is. And in fact it originates from old French, mort, indicates dead, dead, and the gage, means promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.
As soon as I settle the loan this pledge of the title to the bank will die, it'll return to me (what are points in mortgages). Which's why it's called a dead promise or a mortgage. And probably due to the fact that it originates from old French is the reason we don't state mort gage. We say, home mortgage.
They're truly referring to the home loan, home mortgage, the mortgage. And what I want to do in the rest of this video is use a little screenshot from a spreadsheet I made to in fact reveal you the math or actually 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, mortgage, or actually, even much better, just go to the download, simply 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 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 then you can simply download this file if you wish to have fun with it. But what it does here remains in this kind of dark brown color, these are the presumptions that you could input and that 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 down payment, so that's the $125,000 that I had actually conserved up, that I 'd talked about right over there. And after that 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 a quite plain vanilla loan.
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So, thirty years, it's going to be a 30-year set rate home mortgage, repaired rate, repaired rate, which suggests the rate of interest will not change. We'll speak about that in a little bit. This 5.5 percent that I am paying on my, on the money that I obtained will not change over the course of the 30 years.
Now, this little tax rate that I have here, this is to actually determine, what is the tax cost savings of the interest deduction on my loan? And we'll discuss that in a 2nd, we can ignore it for now. And then these other things that aren't in brown, you shouldn't mess with these if you in fact do open this spreadsheet yourself.
So, it's actually the annual rate of interest, 5.5 percent, divided by 12 and most home loan are intensified on a monthly basis - when to refinance mortgages. So, at the end of each month they see how 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 issue. But for a $500,000 loan, well, a $500,000 home, a $375,000 loan over 30 years at a 5.5 percent interest rate. My mortgage payment is going to be roughly $2,100. Now, right when I bought the home I desire to introduce a little bit of vocabulary and we have actually discussed this in a few of the other videos.
And we're presuming that it deserves $500,000. We are presuming that it's worth $500,000. That is an asset. 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 versus that asset, that's the mortgage, 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 financial obligation and if you were basically to sell the possessions and settle the debt. If you offer your home you 'd get the title, you can get the cash and then you pay it back to the bank.