Table of ContentsThe 9-Minute Rule for How Often Are Mortgages CompoundedWho Offers Reverse Mortgages Can Be Fun For EveryoneThe 6-Second Trick For How Do Mortgages Payments Work
What I want to finish with this video is describe what a mortgage is however I believe the majority of us have a least a general sense of it. However even much better than that actually enter into the numbers and comprehend a bit of what you are really doing when you're paying a mortgage, what it's comprised of and how much of it is interest versus how much of it is actually paying for the loan.
Let's say that there is a house that I like, let's say that that is your house that I wish to buy (how reverse mortgages work). It has a cost of, let's say that I need to pay $500,000 to purchase that home, this is the seller of the home right here.
I wish to buy it. I want to purchase the house. This is me right here - what are points in mortgages. And I have actually had the ability to conserve up $125,000. what are reverse mortgages. I've been able to save up $125,000 however I would actually 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 provide me the remainder of the quantity I need for that house, which is essentially $375,000. I'm putting 25 percent down, this right, this right, this https://nycold1osv.doodlekit.com/blog/entry/10514283/h1-styleclearboth-idcontentsection0the-smart-trick-of-what-banks-offer-reverse-mortgages-that-nobody-is-talking-abouth1 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 good guy with an excellent task who has an excellent credit rating.
We need to have that title of the home and when you settle the loan we're going to provide you the title of the home. 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.
However the title of the home, the document that says who in fact owns the house, so this is the home title, this is the title of your 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, perhaps they have not settled 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 mortgage is. And actually it originates from old French, mort, suggests dead, dead, and the gage, indicates pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead promise.
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As soon as I settle the loan this promise of the title to the bank will pass away, it'll come back to me. And that's why it's Have a peek here called a dead promise or a mortgage. And probably since it comes from old French is the reason that we do not state mort gage. what are mortgages. We state, home loan.
They're really referring to the mortgage, home loan, 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 in fact show you the mathematics or actually 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, home loan, or actually, even 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 mortgage calculator, home mortgage calculator, calculator dot XLSX.
However 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 have fun with it. However what it does here remains in this type of dark brown color, these are the assumptions 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 saved up, that I 'd talked about right there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to have to obtain $375,000. It determines it for us and after that 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 suggests the interest rate 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 change throughout the 30 years.
Now, this little tax rate that I have here, this is to in fact figure out, what is the tax cost savings of the interest reduction on my loan? And we'll discuss that in a 2nd, we can overlook it for now. And after that these other things that aren't in brown, you should not tinker these if you really do open this spreadsheet yourself.
So, it's literally the annual interest rate, 5.5 percent, divided by 12 and the majority of home mortgage loans are intensified on a month-to-month basis. So, at the end of on a monthly basis they see how much money you owe and after that they will charge you this much interest on that for the month.
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It's actually a quite fascinating problem. But for a $500,000 loan, well, a $500,000 home, a $375,000 loan over thirty years at a 5.5 percent rate of interest. My home loan payment is going to be approximately $2,100. Now, right when I purchased your home I desire to introduce a bit of vocabulary and we have actually talked about this in a few of the other videos.
And we're presuming that it's worth $500,000. We are assuming that it's worth $500,000. That is a possession. It's a property since it gives you future advantage, the future advantage of being able to live in it. Now, there's a liability against that property, that's the mortgage loan, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your possessions and this is all of your financial obligation and if you were essentially to sell the possessions and settle the debt. If you offer your house you 'd get the title, you can get the money and then you pay it back to the bank.
However if you were to unwind this transaction instantly after doing it then you would have, you would have a $500,000 house, you 'd pay off your $375,000 in financial obligation and you would get in your pocket $125,000, which is precisely what your initial deposit was but this is your equity.