Bank, can you provide me the rest of the amount I need for that house, which is essentially $375,000 (how do variable mortgages work in canada). 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 says, sure, you appear like, uh, uh, a nice man with a good job who has an excellent credit ranking.
We need to have that title of your house and when you pay off the loan we're going to provide you the title of the 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 - how do reverse mortgages work in florida.
But the title of your house, the document that states who in fact owns your home, so this is the house title, this is the title of your 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 home mortgage, it will go to the Browse this site 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 in fact it originates from old French, mort, means dead, dead, and the gage, suggests pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead promise.
As soon as I settle 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 home loan. And most likely due to the fact that it originates from old French is the reason why we don't state mort gage. We say, home loan.
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They're truly describing the home loan, home loan, the home mortgage loan. And what I desire to perform in the rest of this video is utilize a little screenshot from a spreadsheet I made to in fact show you the math or actually reveal you what your home 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, just go to the download, simply 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 home mortgage calculator, home loan calculator, calculator dot XLSX.
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 desire to have fun with it. buy to let mortgages how do they work. However what it does here is in this kind 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 purchasing a $500,000 house. It's a 25 percent down payment, so that's the $125,000 that I had saved up, that I 'd spoken about right over there. And then 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 mortgage, fixed rate, fixed rate, which means the interest rate won't alter. We'll talk about that in a bit. This 5.5 percent that I am paying on my, on the money that I obtained will not alter 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 savings of the interest deduction on my loan? And we'll talk about that in a second, we can disregard it in the meantime. explain how mortgages work. And after that these other things that aren't in brown, you shouldn't tinker these if you in fact do open up this spreadsheet yourself.
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So, it's literally the yearly interest rate, 5.5 percent, divided by 12 and many home loan are compounded on a month-to-month basis. So, at the end of each month they see how much cash you owe and after that they will charge you this much interest on that for the month.
It's really a quite fascinating problem. However for a $500,000 loan, well, a $500,000 house, a $375,000 loan over 30 years at Discover more a 5.5 percent rate of interest. My home loan payment is going to be roughly $2,100. Now, right when I purchased the house I want to present a bit of vocabulary and we've talked about this in some of the other videos.
And we're presuming that it deserves $500,000. We are presuming that it's worth $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 property, that's the home loan, that's the $375,000 liability, $375,000 loan or financial obligation.
If this was all of your properties and this is all of your debt and if you were basically to sell the possessions and pay off the financial obligation. If you offer the house you 'd get the title, you can get the money and after that you pay it back to the bank.
But if you were to relax this transaction instantly after doing it then you would have, you would have a $500,000 house, you 'd settle your $375,000 in debt and you would get in your pocket $125,000, which is exactly what your original down payment was but this is your equity.
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However you could not presume it's continuous and play with the spreadsheet a bit. But I, what I would, I'm introducing this due to the fact that as we pay down the financial obligation this number is going to get smaller sized. So, this number is getting smaller, let's say at some time this is only $300,000, then my equity is going to get larger.
Now, what I have actually done here is, well, really prior to I get to the chart, let me really reveal you how I calculate the chart and I do this throughout thirty years and it goes by month. So, so you can envision that there's really 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
So, on month absolutely no, which I don't reveal here, you obtained $375,000. Now, over the course of that month they're going to charge you 0.46 percent interest, remember that was 5.5 percent divided by 12. 0.46 percent interest on $375,000 is $1,718.75. So, I have not made any home loan payments yet.
So, now prior to I pay any of my payments, instead of owing $375,000 at the end of the very first month I owe $376,718. Now, I'm a hero, I'm not going to default on my mortgage so I make that first mortgage payment that we determined, that we computed right over here (how do cash back mortgages work in canada).