Bank, can you lend me the remainder of the quantity I require for that home, which is essentially $375,000 (how do escrow accounts work for mortgages). I'm putting 25 percent down, this right, this right, this number right here, that is 25 percent of $500,000. So, I siriusxm cancellations 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 great guy with a good task who has an excellent credit score.
We need to have that title of your home and when you settle the loan we're going to give you the title of the home. 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 - how do down payments work on mortgages.
However the title of your house, the document that says who in fact owns your house, so this is the home title, this is the title of your house, house, home title. It will not go to me. It will go to the bank, the house title will go from the seller, possibly even the seller's bank, perhaps 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 mortgage is. This promising of the title for, as the, as the security for the loan, that's what a home mortgage is. And in fact it comes from old French, mort, indicates dead, dead, and the gage, suggests promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead promise.
As soon as I pay off the loan this pledge of the title to the bank will die, it'll return to me. And that's why it's called a dead pledge or a mortgage. And probably since it comes from old French is the reason that we do not state mort gage. We state, home mortgage.
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They're actually referring to the home loan, home mortgage, the mortgage. And what I want to carry out in the rest of this video is utilize a little screenshot from a spreadsheet I made to actually show you the math 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 actually, even better, just go to the download, just go to the downloads, downloads, uh, folder on your web internet browser, you'll see a lot of files and it'll be the file called mortgage calculator, home loan calculator, calculator dot XLSX.
But 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 wish to have fun with it. how do variable mortgages work in canada. But what it does here is in this sort of dark brown color, these are the assumptions that you might input and that you can alter these cells in your spreadsheet without breaking the whole spreadsheet.
I'm buying 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 talked about right there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to have to obtain $375,000. It calculates it for us and after that I'm going to get a quite plain vanilla loan.
So, thirty years, it's going to be a 30-year set rate home mortgage, repaired rate, repaired rate, which means 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 cash that I obtained will not alter throughout the thirty years.
Now, this little tax rate that I have here, this is to actually figure out, what is the tax cost savings of the interest deduction on my loan? And we'll speak about that in a 2nd, we can overlook it in the meantime. how do adjustable rate mortgages work. And after that these other things that aren't in brown, you should not tinker 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 many home loan loans are intensified on a regular monthly basis. So, at the end of monthly 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 issue. However 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 home mortgage payment is going to be approximately $2,100. Now, right when I purchased your house I want to introduce a bit of vocabulary and we have actually spoken about this in some of the other videos.
And we're presuming that it deserves $500,000. We are presuming that it deserves $500,000. That is a property. It's a possession because it gives you future benefit, the future advantage of being able 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 debt.
If this was all of your assets and this is all of your debt and if you were essentially to offer the assets and settle the financial obligation. If you sell your home you 'd get the title, you can get the money and after that you pay it back to the bank.
However if you were to relax this transaction instantly 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 down payment was but this is your equity.
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But you could not presume it's constant and play with the spreadsheet a little bit. But I, what I would, I'm presenting this since as we pay down the financial obligation this number is going to get smaller. So, this number is getting smaller, let's state at some time this is only $300,000, then my equity is going Click here for more info 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 over the course of thirty years and it goes by month. So, so you can envision 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 do not show here, you obtained $375,000. Now, throughout 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 haven't made any 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 loan so I make that first mortgage payment that we determined, that we computed right over here (how does chapter 13 work with mortgages).