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There are extremely strict laws that were passed in current years that require lenders do their due diligence to provide you all the options possible to bring your home mortgage existing or exit homeownership with dignity. why do banks sell mortgages. By comprehending how your home mortgage works, you can secure your financial investment in your house, and will understand what actions to take if you ever have challenges making the payments.
What I desire to finish with this video is discuss what a home mortgage is however I think many of us have a least a basic sense of it. But even much better than that actually go into the numbers and comprehend a bit of what you are actually doing when you're paying a home mortgage, what it's comprised of and how much of it is interest versus how much of it is really paying down the loan.
Let's say that there is a home that I like, let's say that that is your home that I would like to acquire. It has a price of, let's state that I need to pay $500,000 to buy that house, this is the seller of your house right here.
I would like to buy it. I would like to purchase the house. This is me right here. And I have actually had the ability to save up $125,000. I have actually had the ability 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 lend 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. which type of interest is calculated on home mortgages. 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 guy with a great task who has an excellent credit score.
We need to have that title of your home and when you pay off 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 file that states who in fact owns your house, so this is the house title, this is the title of your home, home, 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, maybe they haven't paid off their 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 mortgage is. This vowing of the title for, as the, as the security for the loan, that's what a home loan is. And actually it originates from old French, mort, suggests dead, dead, and the gage, indicates promise, 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 promise of the title to the bank will die, it'll return to me (when to refinance mortgages). And that's why it's called a dead pledge or a home mortgage. And probably since it originates from old French is the reason why we don't say mort gage. We say, home loan.
They're actually describing the home loan, mortgage, the mortgage loan. And what I want to perform in the rest of this video is use a little screenshot from a spreadsheet I made to in fact reveal you the math or actually 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 loan calculator, home loan, or actually, even much better, just go to the download, just go to the downloads, downloads, uh, folder on your web browser, you'll see a bunch of files and it'll be the file called mortgage calculator, home mortgage calculator, calculator dot XLSX.
But just go to this URL and then you'll see all of the files there and then you can simply download this file if you desire to play with it. However what it does here is in this sort of dark brown color, these are the presumptions that you might input which you can alter these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying 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 quantity, well, I have the $125,000, I'm going to need to obtain $375,000. It determines it for us and after that I'm going to get a quite plain vanilla loan.
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So, thirty years, it's going to be a 30-year set rate mortgage, repaired rate, repaired rate, which means the rate of interest 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 obtained will not alter over the course of the thirty years.
Now, this little tax rate that I have here, this is to actually figure out, what is the tax cost savings of the interest deduction on my loan? And we'll talk about that in a 2nd, we can disregard it for now. https://finance.yahoo.com/news/wesley-financial-group-sees-increase-150000858.html And after that these other things that aren't in brown, you should not tinker these if you actually do open up this spreadsheet yourself.
So, it's literally the annual rate of interest, 5.5 percent, divided by 12 and a lot of home loan are intensified timeshare exit team fees on a month-to-month basis - how to sell mortgages. So, at the end of each month they see just how much money you owe and after that they will charge you this much interest on that for the month.
It's really a quite intriguing problem. However for a $500,000 loan, well, a $500,000 house, a $375,000 loan over 30 years at a 5.5 percent rates of interest. My home loan payment is going to be approximately $2,100. Now, right when I bought your home I wish to present a bit of vocabulary and we've talked about this in a few of the other videos.
And we're presuming that it's worth $500,000. We are assuming that it's worth $500,000. That is a possession. It's a possession 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 versus 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 assets and settle the financial obligation. If you sell your house you 'd get the title, you can get the cash and then you pay it back to the bank.