Bank, can you lend me the remainder of the amount I need for that home, which is basically $375,000 (how do assumable mortgages work). 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 appear like, uh, uh, a great person with a great task who has an excellent credit rating.
We have to have that title of your house and when you pay off the loan we're going to offer you the title of your 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 - how do arm mortgages work.
But the title of your house, 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 how can i rent my timeshare 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, possibly they have not settled their home 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 pledging of the title for, as the, as the security for the loan, that's what a home mortgage is. And actually it comes from old French, mort, indicates dead, dead, and the gage, implies pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead pledge.
As soon as I pay off 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 called a dead pledge or a home mortgage. And probably because it comes from old French is the reason that we don't say mort gage. We say, mortgage.
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They're really referring to the mortgage, home loan, the mortgage loan. And what I wish to perform in the rest of this video is use a little screenshot from a spreadsheet I made to in fact reveal you the mathematics or really show 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, mortgage, or actually, even much 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 loan calculator, calculator dot XLSX.
But just go http://devinjaim414.almoheet-travel.com/h1-style-clear-both-id-content-section-0-getting-my-how-fha-mortgages-work-when-you-re-the-seller-to-work-h1 to this URL and then you'll see all of the files there and after that you can just download this file if you wish to play with it. obtaining a home loan and how mortgages work. But what it does here remains in this kind 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 home. It's a 25 percent deposit, so that's the $125,000 that I had actually conserved up, that I 'd talked about right over there. And after that the, uh, loan amount, 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 pretty plain vanilla loan.
So, thirty years, it's going to be a 30-year set rate mortgage, repaired rate, repaired rate, which suggests the rates of interest won't alter. 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 change throughout the thirty years.
Now, this little tax rate that I have here, this is to in fact find out, what is the tax cost savings of the interest deduction on my loan? And we'll talk about that in a second, we can neglect it for now. how does chapter 13 work with mortgages. And after that these other things that aren't in brown, you shouldn't tinker these if you really do open up this spreadsheet yourself.
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So, it's literally the yearly rates of interest, 5.5 percent, divided by 12 and the majority of home loan loans are compounded on a monthly basis. So, at the end of on a monthly basis they see how much cash you owe and after that they will charge you this much interest on that for the month.
It's in fact a quite fascinating issue. However for a $500,000 loan, well, a $500,000 house, a $375,000 loan over thirty years at a 5.5 percent rates of interest. My mortgage payment is going to be roughly $2,100. Now, right when I purchased the house I desire to present 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 a possession. It's a property due to the fact that it provides you future advantage, the future benefit of being able to reside in it. Now, there's a liability versus that asset, 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 financial obligation and if you were essentially to offer the possessions and pay off the debt. If you offer your home you 'd get the title, you can get the cash and then you pay it back to the bank.
However if you were to relax this deal right away 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 original deposit was but this is your equity.
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But you might not assume it's continuous and play with the spreadsheet a little bit. However I, what I would, I'm introducing this since as we pay for the financial obligation this number is going to get smaller sized. So, this number is getting smaller, let's say eventually this is just $300,000, then my equity is going to get larger.
Now, what I have actually done here is, well, actually prior to I get to the chart, let me really reveal you how I determine 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.
So, on month absolutely no, which I do not show here, you borrowed $375,000. Now, over the course of that month they're going to charge you 0.46 percent interest, keep in mind that was 5.5 percent divided by 12. 0.46 percent interest on $375,000 is $1,718.75. So, I haven't made any mortgage payments yet.
So, now before I pay any of my payments, rather of owing $375,000 at the end of the first month I owe $376,718. Now, I'm a hero, I'm not going to default on my mortgage so I make that first mortgage payment that we determined, that we computed right over here (how do mortgages payments work).