Table of Contents9 Simple Techniques For How Are Mortgages CalculatedThe Buzz on Who Offers Interest Only Mortgages10 Simple Techniques For How To Sell Mortgages
What I want to make with this video is explain what a home mortgage is however I think many of us have a least a basic sense of it. However even much better More helpful hints than that really enter into the numbers and understand a bit of what you are really doing when you're paying a home loan, what it's comprised of and how much of it is interest versus how much of it is actually paying down the loan.
Let's say that there is a home that I like, let's state that that is your home that I wish to purchase (how mortgages work). It has a price of, let's say that I require to pay $500,000 to buy that home, this is the seller of the house right here.
I wish to purchase it. I would like to purchase the house. This is me right here - why do mortgages get sold. And I have actually been able to conserve up $125,000. how do second mortgages work. I have actually been able to save up $125,000 but I would actually like to live in that home 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 remainder 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 look like, uh, uh, a great man with an excellent job who has a great credit score.
We have to have that title of your house and as soon as you pay off the loan we're going to offer you the title of the home. 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.
But the title of your home, the file that says who in fact owns your house, so this is the home title, this is the title of your house, house, 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 have not paid off their mortgage, 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 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.
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When I pay off the loan this promise of the title to the bank will die, it'll return to me. And that's why it's called a dead pledge or a mortgage. And most likely because it comes from old French is the factor why we don't state mort gage. how much can i borrow mortgages. We state, mortgage.
They're actually referring to the home mortgage, mortgage, the home loan. And what I desire to do in the rest of this video is use a little screenshot from a spreadsheet I made to actually show you the mathematics or in fact 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, home mortgage, or actually, even better, simply go to the download, just 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 home mortgage calculator, mortgage calculator, calculator dot XLSX.
But simply go to this URL and then 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 is in this type of dark brown color, these are the assumptions that you might input which you can change these cells in your spreadsheet without breaking the entire spreadsheet.
I'm purchasing a $500,000 house. It's a 25 percent deposit, so that's the $125,000 that I had conserved up, that I 'd talked about right 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 https://penzu.com/p/5aa1fde3 a pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate home mortgage, fixed rate, fixed rate, which means the interest rate will not change. We'll talk about that in a little bit. This 5.5 percent that I am paying on my, on the cash that I obtained will not change throughout the 30 years.
Now, this little tax rate that I have here, this is to really determine, what is the tax cost savings of the interest deduction on my loan? And we'll talk about that in a second, we can overlook it in the meantime. And then these other things that aren't in brown, you should not mess with these if you actually do open up this spreadsheet yourself.
So, it's literally the yearly rate of interest, 5.5 percent, divided by 12 and a lot of home loan are intensified on a month-to-month basis. So, at the end of monthly they see how much cash you owe and then they will charge you this much interest on that for the month.
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It's really a pretty intriguing problem. But for a $500,000 loan, well, a $500,000 house, a $375,000 loan over 30 years at a 5.5 percent interest rate. My home mortgage payment is going to be roughly $2,100. Now, right when I bought your house I want to present a bit of vocabulary and we've spoken about this in a few of the other videos.
And we're presuming that it deserves $500,000. We are assuming that it's worth $500,000. That is an asset. It's an asset due to the fact that it gives you future benefit, the future benefit of being able to live in it. Now, there's a liability against that possession, 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 debt and if you were essentially to sell the possessions and settle the debt. If you offer your home you 'd get the title, you can get the cash and after that 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 settle your $375,000 in financial obligation and you would get in your pocket $125,000, which is precisely what your original down payment was but this is your equity.