Bank, can you lend me the rest of the amount I require for that home, which is essentially $375,000 (how do mortgages work in monopoly). 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 seem like, uh, uh, a great guy with an excellent task who has an excellent credit ranking.
We need to have that title of your house and as soon as you pay off the loan we're going to give you the title of the home. 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 fixed rate mortgages work.
But the title of the home, the document that states who actually owns your home, so this is the home title, this is the title of your home, house, 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 have not paid off their home 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 loan is. This pledging of the title for, as the, as the security for the loan, that's what a home mortgage is. And in fact it originates from old French, mort, indicates dead, dead, and the gage, implies pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead pledge.
Once I settle the loan this promise of the title to the bank will pass away, it'll come back to me. And that's why it's called a dead promise or a home mortgage. And most likely since it comes from old French is the reason why we don't state mort gage. We say, how does timeshare cancellation work home loan.
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They're actually referring to the home mortgage, home loan, the home loan. And what I wish 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 mortgage payment is going to. And you can download, you can download this spreadsheet at Khan Academy, khanacademy.org/downloads, downloads, slash mortgage calculator, home loan, or really, 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 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 just download this file if you want to have fun with it. how do business mortgages work. But what it does here remains in this type of dark brown color, these are the assumptions that you might input which 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 down payment, so that's the $125,000 that I had actually saved up, that I 'd discussed right over there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to need to borrow $375,000. It computes it for us and then I'm going to get a pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate mortgage, fixed rate, repaired rate, which indicates the rate of interest will not change. 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 change over the course of the thirty years.
Now, this little tax rate that I have here, this is to actually determine, what is the tax cost savings of the interest reduction on my loan? And we'll discuss that in a 2nd, we can overlook it in the meantime. how does chapter 13 work with mortgages. And after that these other things that aren't in brown, you shouldn't tinker these if you actually do open this spreadsheet yourself.
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So, it's actually the annual rate of interest, 5.5 percent, divided by 12 and many home loan loans are intensified on a month-to-month basis. So, at the end of on a monthly basis they see how much cash you owe and then they will charge you this much interest on that for the month.
It's actually a pretty 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 mortgage payment is going to be roughly $2,100. Now, right when I purchased the home I wish to present a bit of vocabulary and we've spoken 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 a possession. It's a property because it offers you future advantage, the future benefit of being able to live in it. Now, there's a liability versus that asset, 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 home you 'd get the title, you can get the money and then you pay it back to the bank.
But if you were to relax this deal 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 precisely what your initial deposit was however this is your equity.
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But you could not assume it's continuous and play with the spreadsheet a bit. However I, what I would, I'm presenting this due to the fact that as we pay for the debt this number is going to get smaller sized. So, this number is getting smaller, let's say eventually this is just $300,000, then my equity is going to get larger.
Now, what I've done here is, well, in fact before I get to the chart, let me in fact show you how I compute the chart and I do Great site this over the course of 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 do not show 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 haven't 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 first month I owe $376,718. Now, I'm a great man, I'm not going to default on my mortgage so I make that first home mortgage payment that we computed, that we calculated right over here (how do reverse mortgages work in florida).