Let's say that there is a home that I like, let's say that that is the house that I want to purchase. It has a cost of, let's state that I need to pay $500,000 to buy that house, this is the seller of the home right here.
I want to purchase it. I wish to purchase your house. This is me right here. And I have actually had the ability to conserve up $125,000. I have actually had the ability to save up $125,000 however I would actually like to live 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 quantity I need 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. 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 seem like, https://apnews.com/Globe%20Newswire/36db734f7e481156db907555647cfd24 uh, uh, a good guy with a good job who has a great credit score.
We need to have that title of your home and when you settle the loan we're going to give 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 house, the document that states who in fact owns your house, so this is the house title, this is the title of your home, 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 borrowing from.
So, this is the security right here. That is technically what a mortgage is. This pledging of the title for, as the, as the security for the loan, that's what a mortgage is. how adjustable rate mortgages work. And really it originates from old French, mort, implies dead, dead, and the gage, means 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 marty anderson attorney die, it'll come back to me. And that's why it's called a dead pledge or a home loan. And probably since it originates from old French is the reason we don't say mort gage. We say, home loan.
They're really referring to the home loan, mortgage, the home loan. And what I wish to perform in the rest of this video is use a little screenshot from a spreadsheet I made to actually show you the mathematics or really reveal you what your home mortgage payment is going to. And you can download, you can download this spreadsheet at Khan Academy, khanacademy.org/downloads, downloads, slash mortgage calculator, home mortgage, or in fact, even better, just go to the download, simply go to the downloads, downloads, uh, folder on your web internet browser, you'll see a lot of files and it'll be the file called mortgage calculator, home mortgage calculator, calculator dot XLSX.
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But just 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. But what it does here remains in this sort of dark brown color, these are the presumptions that you might input which you can alter these cells in your spreadsheet without breaking the whole spreadsheet.
I'm purchasing a $500,000 home. It's a 25 percent deposit, 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 need to borrow $375,000. It determines it for us and then I'm going to get a quite plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate home loan, fixed rate, repaired rate, which means the rates of interest won't change. We'll talk about that in a bit. This 5.5 percent that I am paying on my, on the money that I obtained will not alter throughout the 30 years.
Now, this little tax rate that I have here, this is to really figure out, what is the tax savings of the interest deduction on my loan? And we'll speak about that in a second, we can overlook it in the meantime. And after that these other things that aren't in brown, you shouldn't tinker these if you actually do open up this spreadsheet yourself - how do second mortgages work.
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So, it's actually the annual interest rate, 5.5 percent, divided by 12 and a lot of mortgage are intensified on a regular monthly basis. So, at the end of each month 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 really a quite fascinating issue. However for a $500,000 loan, well, a $500,000 home, a $375,000 loan over thirty years at a 5.5 percent rates of interest. My mortgage payment is going to be approximately $2,100. Now, right when I bought the house I desire to introduce a bit of vocabulary and we have actually discussed this in a few of the other videos.
And we're assuming that it deserves $500,000. We are presuming that it deserves $500,000. That is a possession. It's a property due to the fact that it gives you future benefit, the future advantage of being able to live in it. Now, there's a liability versus that asset, that's the home mortgage loan, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your assets and this is all of your financial obligation and if you were basically to offer the assets and settle the debt. how mortgages work. If you sell your home you 'd get the title, you can get the cash and after that you pay it back to the bank.
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But if you were to unwind this transaction instantly after doing it then you would have, you would have a $500,000 home, you 'd settle your $375,000 in financial obligation and you would get in your pocket $125,000, which is exactly what your initial down payment was however this is your equity.
However you might not presume it's continuous and play with the spreadsheet a bit. However I, what I would, I'm introducing this because as we pay down the financial obligation this number is going to get smaller sized. So, this number is getting smaller, let's say at some time this is only $300,000, then my equity is going to get larger.
Now, what I have actually done here is, well, really prior to I get to the chart, let me in fact reveal you how I compute the chart and I do this throughout 30 years and it goes by month. So, so you can envision that there's actually 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.