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There are very rigorous laws that were passed in recent years that require lenders do their due diligence to give you all the options possible to bring your home mortgage current or exit homeownership gracefully. how do mortgages work. By comprehending how your mortgage works, you can secure your financial investment in your home, and will know what actions to take if you ever have obstacles making the payments.
What I desire to make with this video is explain what a home loan is however I believe the majority of us have a least a basic sense of it. However even better than that really go into the numbers and understand a bit of what you are really doing when you're paying a mortgage, what it's comprised of and how much of it is interest versus just how much of it is actually paying for the loan.
Let's say that there is a house that I like, let's say that that is your house that I wish to acquire. It has a price of, let's say that I require to pay $500,000 to purchase that house, this is the seller of your home right here.
I would like to purchase it. I would like to purchase your house. This is me right here. And I have actually been able to conserve up $125,000. I have actually been able to save up $125,000 but I would really like to reside in that home 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 provide me the remainder of the quantity 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. how much can i borrow mortgages. 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 look like, uh, uh, a good guy with an excellent job who has an excellent credit score.
We need to have that title of your house and as soon as you settle the loan we're going to provide 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.
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But the title of the home, the file that states who in fact owns your house, so this is the house 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, perhaps even the seller's bank, perhaps they haven't 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 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, means dead, dead, and the gage, means promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.
As soon as I pay off the loan this pledge of the title to the bank will pass away, it'll return to me (how to sell mortgages). Which's why it's called a dead pledge or a mortgage. And most likely since it originates from old French is the reason we don't say mort gage. We state, mortgage.
They're truly referring to the home loan, home loan, the mortgage loan. And what I wish to carry out in the rest of this video is use a little screenshot from a spreadsheet I made to in fact show you the mathematics 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 mortgage calculator, home loan, or really, even 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 loan calculator, home mortgage calculator, calculator dot XLSX.
However simply 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 type of dark brown color, these are the assumptions that you could input and that you can alter 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 actually conserved up, that I 'd discussed right there. And then 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, 30 years, it's going to be a 30-year fixed rate home mortgage, repaired rate, repaired rate, which means the interest rate won't change. We'll speak 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 in fact determine, what is the tax cost savings of the interest reduction on my loan? And we'll talk about that in a second, we can ignore it in the meantime. And then these https://apnews.com/Globe%20Newswire/8d0135af22945c7a74748d708ee730c1 other things that aren't in brown, you shouldn't tinker these if you in fact do open this spreadsheet yourself.
So, it's literally the yearly interest rate, 5.5 percent, divided by 12 and most mortgage are compounded on a monthly basis - when to refinance mortgages. 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.
It's actually a pretty interesting problem. 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 mortgage payment Great post to read is going to be approximately $2,100. Now, right when I purchased the home I want to present 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. We are presuming that it's worth $500,000. That is an asset. It's a possession due to the fact that it provides you future advantage, the future benefit of having the ability to reside in it. Now, there's a liability against that property, that's the mortgage, 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 assets and settle the debt. If you sell your house you 'd get the title, you can get the cash and after that you pay it back to the bank.