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What I want to make with this video is discuss what a home mortgage is however I believe the majority of us have a least a basic sense of it. But even much better than that really go into the numbers and understand a little 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 down the loan.
Let's state that there is a house that I like, let's state that that is the home that I wish to purchase (how many mortgages can you have). It has a price 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 wish to purchase it. I want to purchase your home. This is me right here - what does it mean when economists say that home buyers are "underwater" on their mortgages?. And I have actually had the ability to save up $125,000. what are points in mortgages. I've had the ability to conserve up $125,000 however I would really 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 remainder of the quantity I need for that home, 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 seem like, uh, uh, a nice man with a great job who has an excellent credit score.
We need to have that title of your home and once you pay off 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.
However the title of your house, the file that states who in fact owns your home, so this is the home title, this is the title of the 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, possibly they have not paid off 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 home loan is. This promising of the title for, as the, as the security for the loan, that's what a home loan is. And really it comes from old French, mort, implies dead, dead, and the gage, indicates pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead promise.
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When I settle the loan this promise of the title to the bank will die, it'll return to me. Which's why it's called a dead pledge or a home mortgage. And most likely because it comes from old French is the reason we don't state mort gage. how reverse mortgages work. We say, mortgage.
They're really referring to the home mortgage, http://franciscotsru776.fotosdefrases.com/h1-style-clear-both-id-content-section-0-examine-this-report-on-what-percentage-of-mortgages-are-fha-h1 mortgage, the mortgage. And what I desire to do in the rest of this video is use a little screenshot from a spreadsheet I made to really show you the mathematics or in fact show 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, mortgage, or in fact, 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, mortgage calculator, calculator dot XLSX.
But simply go to this URL and after that 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 presumptions that you might 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 deposit, so that's the $125,000 that I had actually saved 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 obtain $375,000. It calculates 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 mortgage, fixed rate, repaired rate, which implies 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 cash that I borrowed will not alter over the course of the 30 years.
Now, this little tax rate that I have here, this is to actually determine, what is the tax savings of the interest deduction on my loan? And we'll discuss that in a second, we can neglect it in the meantime. And then these other things that aren't in brown, you should not tinker these if you really do open this spreadsheet yourself.
So, it's actually the yearly rates of interest, 5.5 percent, divided by 12 and the majority of home loan are intensified on a monthly basis. So, at the end of every month they see just 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 really a quite interesting problem. But for a $500,000 loan, well, a $500,000 house, a $375,000 loan over thirty years at a 5.5 percent rate of interest. My mortgage payment is going to be roughly $2,100. Now, right when I purchased your home I want to present a little bit of vocabulary and we have actually talked about 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 an asset due to the fact that it offers you future advantage, the future benefit of being able to reside 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 assets and this is all of your debt and if you were basically to sell the possessions and settle the financial obligation. If you sell your home you 'd get the title, you can get the money and after that you pay it back to the bank.
However if you were to unwind this transaction immediately after doing it then you would have, you would have a $500,000 home, you 'd pay off your $375,000 in financial Home page obligation and you would get in your pocket $125,000, which is exactly what your original down payment was but this is your equity.