Let's say that there is a home that I like, let's state that that is your home that I want to acquire. It has a price of, let's say that I need to pay $500,000 to buy that house, this is the seller of the home right here.
I want to buy it. I want to buy your house. This is me right here. And I've been able to save up $125,000. I've had the ability to save up $125,000 however I would actually 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 lend me the rest of the quantity I need for that home, which is essentially $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 states, sure, you appear like, uh, uh, a great guy with a good task who has an excellent credit rating.
We have to have that title of your house and when you settle the loan we're going to give 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.
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However the title of your home, the document that states who in fact owns the home, so this is the house title, this is the title of the home, house, home 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, maybe they haven't settled their mortgage, it will go to the bank that I'm borrowing from.
So, this is the security right here. That is technically what a home loan is. This promising of the title for, as the, as the security for the loan, that's what a home loan is. how do buy to let mortgages work uk. And actually it comes from old French, mort, indicates dead, dead, and the gage, indicates pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.
As soon as I pay off the loan this pledge of the title to the bank will pass away, it'll return to me. And that's why it's called a dead promise or a home mortgage. And most likely 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 describing the mortgage, mortgage, the home loan. And what I wish to carry out in the rest of this video is utilize https://www.businesswire.com/news/home/20200115005652/en/Wesley-Financial-Group-Founder-Issues-New-Year%E2%80%99s a little screenshot from a spreadsheet I made to in fact reveal you the mathematics or actually 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 loan, or really, even much better, simply 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 loan calculator, calculator dot XLSX.
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But simply go to this URL and then you'll see all of the files there and then you can just download this file if you desire to play with it. But what it does here is in this type of dark brown color, these are the presumptions that you might input which 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 conserved up, that I 'd talked about right over there. And then the, uh, loan quantity, well, I have the $125,000, I'm going to need to obtain $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 set rate home mortgage, repaired rate, fixed rate, which suggests the rate of interest won't change. We'll speak about that in a little bit. This 5.5 percent that I am paying on my, on the cash that I borrowed will not alter throughout 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 speak about that in a 2nd, we can overlook it in the meantime. And after that these other things that aren't in brown, you should not mess with these if you actually do open this spreadsheet yourself - how do reverse mortgages work after death.
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So, it's literally the yearly rates of interest, 5.5 percent, divided by 12 and many mortgage loans are compounded on a monthly basis. So, at the end of each month they see just how much cash you owe and then they will charge you this much interest on that for the month.
It's in fact a pretty intriguing issue. But for a $500,000 loan, well, a $500,000 house, a $375,000 loan over thirty years at a 5.5 percent interest rate. My mortgage payment is going to be roughly $2,100. Now, right when I purchased the house I want to introduce a little bit of vocabulary and we have actually talked about this in some of the other videos.
And we're presuming that it's worth $500,000. We are assuming that it deserves $500,000. That is a possession. It's an asset https://www.bintelligence.com/blog/2020/2/17/34-companies-named-2020-best-places-to-work because it gives you future benefit, the future advantage of being able to reside in it. Now, there's a liability versus that possession, that's the mortgage, 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 basically to offer the properties and settle the financial obligation. how do down payments work on mortgages. If you sell your house you 'd get the title, you can get the cash and after that you pay it back to the bank.
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However if you were to relax this deal instantly after doing it then you would have, you would have a $500,000 house, you 'd settle your $375,000 in financial obligation and you would get in your pocket $125,000, which is exactly what your initial deposit was but this is your equity.
However you could not presume it's constant and play with the spreadsheet a bit. However I, what I would, I'm presenting this due to the fact that as we pay for the debt this number is going to get smaller. So, this number is getting smaller, let's state at some time this is just $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 really show you how I calculate the chart and I do this over the course of 30 years and it goes by month. So, so you can envision that there's in fact 360 rows here on the real spreadsheet and you'll see that if you go and open it up.