Bank, can you provide me the rest of the amount I require for that home, which is basically $375,000 (how do reverse mortgages work). 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 look like, uh, uh, a good person with an excellent job who has a good credit rating.
We need to have that title of the home and as soon as you settle the loan we're going to offer you the title of your home. 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 second mortgages work in ontario.
However the title of your house, the file that says who actually owns your house, so this is the home title, this is the title of the 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, possibly they haven't settled 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 home mortgage is. And actually it comes from old French, mort, indicates dead, dead, and the gage, means pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead promise.
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 mortgage. And most likely because it comes from old French is the reason that we don't state mort gage. We say, home mortgage.
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They're truly referring to the mortgage, mortgage, the mortgage loan. And what I want to do in the rest of this video is use a little screenshot from a spreadsheet I made to in fact show 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 mortgage calculator, home mortgage, or actually, 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 mortgage calculator, home loan calculator, calculator dot XLSX.
However just go to this URL and after that you'll see all of the files there and then you can simply download this file if you desire to play with it. how do assumable mortgages work. But what it does here is in this sort of dark brown color, these are the assumptions that you could input and that you can change these cells in your spreadsheet without breaking the entire 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 spoken about right there. And then the, uh, loan quantity, well, I have the $125,000, I'm going to need to borrow $375,000. It computes it for us and after that I'm going to get a pretty plain vanilla loan.
So, thirty years, it's going to be a 30-year fixed rate home mortgage, fixed rate, fixed rate, which indicates the rates of interest will not 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 throughout the thirty years.
Now, this little tax rate that I have here, this is to really find out, what is the tax cost savings of the interest deduction on my loan? And we'll discuss that in a 2nd, we can neglect it in the meantime. how to reverse mortgages work. And after that these other things that aren't in brown, you should not mess with these if you really do open this spreadsheet yourself.
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So, it's literally the yearly rate of interest, 5.5 percent, divided by 12 and a more info lot of mortgage are compounded on a regular monthly basis. So, at the end of monthly they see just how much money you owe and then they will charge you this much interest on that for the month.
It's actually a quite interesting problem. However for a $500,000 loan, well, a $500,000 house, a $375,000 loan over 30 years at a 5.5 percent rate of interest. My home loan payment is going to be approximately $2,100. Now, right when I bought your house I want to present a little bit of vocabulary and we've discussed this in some of the other videos.
And we're assuming that it's worth $500,000. We are assuming that it's worth $500,000. That is a property. It's a property due to the fact that it provides you future advantage, the future benefit of being able 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 financial obligation.
If this was all of your properties and this is all of your debt 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 unwind this transaction immediately after doing it then you would have, you would have a $500,000 home, 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 might not presume it's constant and play with the spreadsheet a bit. However I, what I wyndham timeshare cancellation letter would, I'm presenting this since as we pay down the financial obligation this number is going to get smaller sized. So, this number is getting smaller sized, let's say at some point this is only $300,000, then my equity is going to get larger.
Now, what I've done here is, well, really before I get to the chart, let me in fact show you how I calculate the chart and I do this over the course of 30 years and it passes month. So, so you can picture that there's actually 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.
So, on month 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, 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 mortgage 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 hero, I'm not going to default on my home mortgage so I make that very first home loan payment that we computed, that we computed right over here (how mortgages work).