Bank, can you provide me the remainder of the amount I need for that home, which is basically $375,000 (how do cash back 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 guy with a great task who has a great credit ranking.
We need to have that title of your home and when you settle the loan we're going to give you the title of your house. So what's going to take place 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 mortgages work in canada.
But the title of your home, the document that states who in fact owns the house, so this is the home title, this is the title of the home, home, house 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, maybe they have not paid off 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 home loan is. This vowing of the title for, as the, as the security for the loan, that's what a mortgage is. And in fact it originates from old French, mort, indicates dead, dead, and the gage, indicates promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.
Once 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 home loan. And probably because it comes from old French is the reason we do not state mort gage. We state, home loan.
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They're really referring to the home mortgage, home mortgage, the mortgage. And what I wish to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to in fact reveal you the mathematics or actually 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 bunch of files and it'll be the file called home loan calculator, home loan calculator, calculator dot XLSX.
But simply go to this URL and then you'll see all of the files there and after that you can just download this file if you want to play with it. how do reverse mortgages really work. However what it does here remains in this type of dark brown color, these are the presumptions that you might input and that 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 deposit, so that's the $125,000 that I had conserved up, that I 'd discussed right there. And then the, uh, loan amount, well, I have the $125,000, I'm going to have to obtain $375,000. It computes 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 loan, repaired rate, repaired rate, which indicates the rate of interest 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 borrowed will not alter over the course of the 30 years.
Now, this little tax rate that I have here, this is to in fact figure out, what is the tax cost savings of the interest reduction on my loan? And we'll discuss that in a second, we can disregard it for now. how reverse mortgages work. And then these other things that aren't in brown, you should not mess with these if you actually do open this spreadsheet yourself.
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So, it's actually the yearly interest rate, 5.5 percent, divided by 12 and most mortgage loans are intensified on westlake financial services lienholder address 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.
It's really a quite interesting problem. However for a $500,000 loan, well, a $500,000 home, a $375,000 loan over thirty years at a 5.5 percent interest rate. My home loan payment is going to be roughly $2,100. Now, right when I purchased your house I wish to present a little bit of vocabulary and we have actually discussed this in some 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 an asset. It's an asset since it gives you future benefit, the future benefit of having the ability to reside 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 essentially to sell the possessions and pay off the debt. If you offer the home you 'd get the title, you can get the money and then you pay it back to the bank.
However if you were to unwind this deal immediately after doing it then you would have, you would have a $500,000 house, you 'd pay off your $375,000 in financial obligation and you would get in your pocket $125,000, which is precisely what your initial deposit was but this is your equity.
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However you might not assume it's constant and play with the spreadsheet a little bit. But I, what I would, I'm introducing this because as we pay for the financial obligation this number is going to get smaller. So, this number is getting smaller, let's state at some point this is just $300,000, then my equity is going to get larger.
Now, what I've done here is, well, in fact prior to I get to the chart, let me really show you how I calculate the chart and I do this over the course of cancel sirius xm radio 30 years and it goes by month. So, so you can imagine that there's actually 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 borrowed $375,000. Now, over the course of that month they're going to charge you 0.46 percent interest, keep in mind 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 mortgage payments yet.
So, now prior to I pay any of my payments, rather 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 home loan so I make that first home mortgage payment that we calculated, that we calculated right over here (obtaining a home loan and how mortgages work).