Let's state that there is a home that I like, let's say that that is your house that I want to acquire. It has a cost of, let's say that I require to pay $500,000 to buy that house, this is the seller of your house right here.
I wish to buy it. I want to purchase the home. This is me right here. And I've been able to conserve up $125,000. I have actually been able to conserve up $125,000 however I would really like to reside in that house 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 provide me the remainder of the amount 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. 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 good guy with a good job who has an excellent credit rating.
We need to have that title of your home and when you settle the loan we're going to give you the title of your 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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But the title of the home, the document that says who in fact owns your home, so this is the home title, this is the title of the home, home, 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, possibly they haven't settled 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 home https://www.businesswire.com/news/home/20200115005652/en/Wesley-Financial-Group-Founder-Issues-New-Year%E2%80%99s loan is. This pledging of the title for, as the, as the security for the loan, that's what a home mortgage is. how do points work in mortgages. And in fact it comes from old French, mort, suggests dead, dead, and the gage, means promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead promise.
Once I pay off the loan this pledge of the title to the bank will die, it'll come back to me. Which's why it's called a dead pledge or a home loan. And probably due to the fact that it originates from old French is the reason we don't say mort gage. We state, home mortgage.
They're really referring to the mortgage, home mortgage, the home loan. And what I desire to perform in the rest of this video is use a little screenshot from a spreadsheet I made to really reveal you the math or really 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 in fact, even much 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 mortgage calculator, home mortgage calculator, calculator dot XLSX.
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However just go to this URL and then you'll see all of the files there and after that https://www.bintelligence.com/blog/2020/2/17/34-companies-named-2020-best-places-to-work you can just download this file if you want to have fun with it. However 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 buying a $500,000 home. It's a 25 percent down payment, so that's the $125,000 that I had actually saved up, that I 'd talked about right there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to need to borrow $375,000. It calculates it for us and then I'm going to get a pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate home loan, repaired rate, fixed rate, which indicates the interest rate will not alter. We'll talk about that in a bit. This 5.5 percent that I am paying on my, on the money that I borrowed will not alter over the course of the 30 years.
Now, this little tax rate that I have here, this is to actually find out, what is the tax cost savings of the interest deduction on my loan? And we'll speak about that in a 2nd, we can overlook it for now. And after that these other things that aren't in brown, you shouldn't tinker these if you actually do open this spreadsheet yourself - how do reverse mortgages work in florida.
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So, it's actually the annual rates of interest, 5.5 percent, divided by 12 and most home loan 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 then they will charge you this much interest on that for the month.
It's in fact a quite intriguing problem. However for a $500,000 loan, well, a $500,000 house, a $375,000 loan over 30 years at a 5.5 percent rates of interest. My mortgage payment is going to be approximately $2,100. Now, right when I purchased your house I desire to introduce a bit of vocabulary and we have actually spoken about this in a few of the other videos.
And we're assuming that it deserves $500,000. We are assuming that it's worth $500,000. That is an asset. It's a property since it offers you future advantage, the future advantage of being able to live in it. Now, there's a liability against that possession, that's the home loan, that's the $375,000 liability, $375,000 loan or financial obligation.
If this was all of your assets and this is all of your debt and if you were essentially to sell the assets and settle the debt. how do arm mortgages work. If you sell your home you 'd get the title, you can get the money and after that you pay it back to the bank.
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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 but this is your equity.
But you might not assume it's continuous and have fun with the spreadsheet a bit. But I, what I would, I'm presenting this due to the fact that as we pay for the financial obligation this number is going to get smaller. So, this number is getting smaller, let's say eventually this is just $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, really before I get to the chart, let me really show you how I compute the chart and I do this throughout 30 years and it passes month. So, so you can think of that there's actually 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.
