Let's say that there is a house that I like, let's state that that is your home that I want to purchase. It has a cost of, let's say that I require to pay $500,000 to purchase that home, this is the seller of your home right here.
I would like to buy it. I want to purchase your house. This is me right here. And I have actually had the ability to save up $125,000. I have actually been able to save up $125,000 however I would really 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 provide me the rest of the amount I require for that house, 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 look like, uh, uh, a good man with a great task who has an excellent credit rating.
We have to have that title of your house and as soon as you settle the loan we're going to provide 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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But the title of the house, the file that says who really owns the home, so this is the home title, this is the title of the house, house, home title. It will not go to me. It will go to the bank, the house title will go from the seller, maybe even the seller's bank, perhaps 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 mortgage is. This promising of the title for, as the, as the security for the loan, that's what a home loan is. how do reverse mortgages work in florida. And actually it comes from old French, mort, suggests dead, dead, and the gage, means pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead promise.
As soon as I settle the loan this pledge of the title to the bank will pass away, it'll come back to me. And that's why it's https://www.inhersight.com/companies/best/reviews/telecommute?_n=112289508 called a dead pledge or a mortgage. And most likely due to the fact that it comes from old French is the reason we do not say mort gage. We state, mortgage.
They're actually describing the home mortgage, home loan, the home mortgage loan. And what I desire to carry out in the rest of this video is utilize a little screenshot from a spreadsheet I made to actually reveal you the math 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 mortgage calculator, home mortgage, or in fact, even much better, just 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 mortgage calculator, home mortgage calculator, calculator dot XLSX.
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However 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 want to play with it. However what it does here remains in this sort of dark brown color, these are the assumptions that you could 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 down payment, so that's the $125,000 that I had actually saved up, that I 'd discussed right 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 mortgage, fixed rate, repaired rate, which suggests the interest rate won't alter. We'll speak about that in a bit. This 5.5 percent that I am paying on my, on the cash that I borrowed will not alter throughout the thirty years.
Now, this little tax rate that I have here, this is to really determine, what is the tax savings of the interest reduction on my loan? And we'll speak about that in a 2nd, we can neglect it for now. And then these other things that aren't in brown, you shouldn't tinker these if you actually do open this spreadsheet yourself - how do 2nd mortgages work.
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So, it's actually the annual rates of interest, 5.5 percent, divided by 12 and the majority of mortgage are compounded on a regular monthly basis. So, at the end of each month they see 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 interesting problem. But for a $500,000 loan, well, a $500,000 home, a $375,000 loan over 30 years at a 5.5 percent interest rate. My mortgage payment is going to be roughly $2,100. Now, right when I bought your home I want to present a bit of vocabulary and we've discussed this in some of the other videos.
And we're assuming that it's worth $500,000. We are assuming that it deserves $500,000. That is a property. It's a possession since it gives you future benefit, the future advantage of having the ability to reside in it. Now, there's a liability against that possession, that's the home mortgage 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 sell the possessions and settle the debt. how do reverse mortgages work in florida. If you offer your home you 'd get the title, you can get the cash and then https://www.inhersight.com/companies/best/industry/finance you pay it back to the bank.
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However if you were to unwind 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 precisely what your initial deposit was however this is your equity.
But you might not assume it's constant and have fun with the spreadsheet a bit. But I, what I would, I'm presenting this because as we pay down the debt this number is going to get smaller. So, this number is getting smaller, let's say eventually this is only $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, really before I get to the chart, let me actually show you how I calculate the chart and I do this throughout 30 years and it goes by month. So, so you can envision that there's actually 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.