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What I wish to make with this video is describe what a home mortgage is however I believe the majority of us have a least a general sense of it. However even better than that actually enter into the numbers and understand a little bit of what you are really doing when you're paying a mortgage, what it's made up of and just how much of it is interest versus just how much of it is in fact paying down the loan.
Let's say that there is a house that I like, let's state that that is your home that I would like to buy (which type of credit is usually used for cars). It has a price of, let's state that I require to pay $500,000 to buy that house, this is the seller of your house right here.
I wish to buy it. I would like to purchase your home. This is me right here - which fico score is used for mortgages. And I have actually had the ability to save up $125,000. why do banks sell mortgages. I have actually been able to save up $125,000 but I would really like to live in that house so I go to a bank, I go to a bank, get a brand-new color for the bank, so that is the bank right there.
Bank, can you provide 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 a good job who has a great credit ranking.
We need to have that title of your house and as soon as you settle the loan we're going to give 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 says who really owns your house, so this is the house title, this is the title of your house, home, house 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, perhaps they have not settled their home 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 vowing of the title for, as the, as the security for the loan, that's what a mortgage is. And actually it originates 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 comes from dead pledge.
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As soon as I settle the loan this promise of the title to the bank will die, it'll come back to me. And that's why it's called a dead pledge or a mortgage. And probably because it originates from old French is the reason why we don't say mort gage. which of the statements below is most correct regarding adjustable rate mortgages?. We state, home mortgage.
They're really referring to the mortgage, home mortgage, the home loan. And what I want 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 really 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 home loan calculator, home loan, or actually, even much better, simply go to the download, simply 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 home 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 just download this file if you desire to have fun with it. But what it does here remains in this sort of dark brown color, these are the presumptions that you might input which you http://zionnpny405.almoheet-travel.com/h1-style-clear-both-id-content-section-0-which-of-the-statements-below-is-most-correct-regarding-adjustable-rate-mortgages-fundamentals-explained-h1 can alter these cells in your spreadsheet without breaking the whole spreadsheet.
I'm buying a $500,000 house. It's a 25 percent down payment, so that's the $125,000 that I had actually saved up, that I 'd talked about right over there. And then the, uh, loan quantity, well, I have the $125,000, I'm going to have 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 mortgage, repaired rate, fixed rate, which indicates the interest rate will not alter. 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 alter throughout the thirty years.
Now, this little tax rate that I have here, this is to actually find out, what is the tax cost savings of the interest deduction on my loan? And we'll speak about that in a second, we can disregard it for now. And then these other things that aren't in brown, you shouldn't mess with these if you really do open this spreadsheet yourself.
So, it's literally the annual rates of interest, 5.5 percent, divided by 12 and a lot of home loan are compounded on a regular monthly basis. So, at the end of on a monthly basis they see just how much cash you owe and then they will charge you this much interest on that for the month.
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It's actually a pretty interesting issue. But for a $500,000 loan, well, a $500,000 home, a $375,000 loan over 30 years at a 5.5 percent rates of interest. My home mortgage payment is going to be roughly $2,100. Now, right when I bought your house I wish to introduce a little bit of vocabulary and we have actually discussed this in a few of the other videos.
And we're assuming that it deserves $500,000. Browse this site We are assuming that it's worth $500,000. That is an asset. It's a possession because it provides you future advantage, the future advantage of having the ability to reside in it. Now, there's a liability versus that possession, that's the home 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 obligation and if you were basically to sell the assets and pay off the financial obligation. If you sell 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 transaction instantly after doing it then you would have, you would have a $500,000 home, you 'd pay off 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.