Let's state that there is a home that I like, let's say that that is your house that I want to buy. It has a price tag of, let's say that I need to pay $500,000 to buy that home, this is the seller of your house right here.
I want to purchase it. I wish to purchase the house. This is me right here. And I've had the ability to conserve up $125,000. I've had the ability to conserve up $125,000 however I would truly like to live 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 amount I need for that house, 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 states, sure, you appear like, uh, uh, a great guy with an excellent job who has an excellent credit score.
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 your house, the document that says who really owns your home, so this is the home title, this is the title of the home, house, house 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 mortgage, it will go to the bank that I'm obtaining 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. how to reverse mortgages work. And really it comes from old French, mort, suggests dead, dead, and the gage, suggests promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead promise.
Once I pay off the loan this promise 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 mortgage. And most likely due to the fact that it originates from old French is the reason that we do not say mort gage. We state, mortgage.
They're truly describing the home loan, home loan, the mortgage loan. And what I wish to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to really show you the math or in fact 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 mortgage, or actually, even better, simply 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 home mortgage calculator, mortgage 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 after that you can simply download this file if you want to have fun 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 change these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying a $500,000 house. It's a 25 percent deposit, so that's the $125,000 that I had actually conserved up, that I 'd discussed right over there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to have to borrow $375,000. It determines it for us and after that I'm going to get a pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year set rate mortgage, fixed rate, repaired rate, which implies the rate of interest won't change. We'll discuss that in a little bit. This 5.5 percent that I am paying on my, on the money that I borrowed will not change over the course of the 30 years.
Now, this little tax rate that I have here, this is to really figure out, what is the tax cost savings of the interest deduction on my loan? And we'll speak about that in a second, we https://www.bloomberg.com/press-releases/2019-08-06/wesley-financial-group-provides-nearly-6-million-in-timeshare-debt-relief-in-july can neglect it for now. And then these other things that aren't in brown, you shouldn't mess with these if you actually do open this spreadsheet yourself - explain how mortgages work.
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So, it's actually the yearly rate of interest, 5.5 percent, divided by 12 and most home loan are intensified on a monthly basis. So, at the end of every month they see just how much money you owe and then they will charge you this much interest on that for the month.
It's really a quite intriguing issue. But for a $500,000 loan, well, a $500,000 home, a $375,000 loan over thirty years at a 5.5 percent interest rate. My home mortgage payment is going to be approximately $2,100. Now, right when I bought your home I desire to present a little bit of vocabulary and we have actually spoken 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 an asset. It's a possession due to the fact that it offers you future advantage, the future advantage of being able to live in it. Now, there's a liability versus that asset, that's the home 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 https://www.bizjournals.com/nashville/news/2020/04/13/nbj-reveals-the-2020-best-places-to-work-honorees.html obligation and if you were essentially to offer the assets and pay off the financial obligation. how to reverse mortgages work. If you offer your home you 'd get the title, you can get the cash and then you pay it back to the bank.
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However if you were to relax this transaction right away after doing it then you would have, you would have a $500,000 home, you 'd settle your $375,000 in debt and you would get in your pocket $125,000, which is exactly what your initial down payment was but this is your equity.
However you could not presume it's consistent and play with the spreadsheet a little bit. But I, what I would, I'm presenting this because as we pay down the debt this number is going to get smaller sized. So, this number is getting smaller, let's say at some point this is only $300,000, then my equity is going to get larger.
Now, what I have actually done here is, well, really before I get to the chart, let me actually show you how I determine the chart and I do this over the course of thirty years and it passes month. So, so you can envision that there's really 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.
