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What I want to make with this video is explain what a mortgage is however I think many of us have a least a basic sense of it. However even much better than that in fact enter into the numbers and understand a bit of what you are in fact doing when you're paying a home mortgage, what it's made up of and just how much of it is interest versus just how much of it is in fact paying down the loan.
Let's state that there is a home that I like, let's say that that is your house that I wish to purchase (how much can i borrow mortgages). It has a cost tag of, let's state that I need to pay $500,000 to buy that house, this is the seller of your home right westland financial services here.
I want to buy it. I want to purchase the house. This is me right here - non-federal or chartered banks who broker or lend for mortgages must be registered with. And I have actually had the ability to conserve up $125,000. reverse mortgages are most useful for elders who. I've been able to save up $125,000 however 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 lend me the rest of the amount I need for that house, which is basically $375,000. 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 good person with a great task who has a great credit rating.
We have to have that title of the house and when you settle the loan we're going to provide you the title of your 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.
However the title of the house, the document that states who really owns your home, so this is the home title, this is the title of the home, home, home 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, perhaps they have not settled 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 pledging 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 pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead promise.
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When I pay off the loan this pledge of the title to the bank will pass away, it'll return to me. And that's why it's called a dead pledge or a mortgage. And probably due to the fact that it originates from old French is the reason that we do not state mort gage. what are mortgages. We say, home mortgage.
They're truly referring to the mortgage, home mortgage, the home mortgage loan. And what I want to carry out in the rest of this video is use a little screenshot from a spreadsheet I made to actually show you the mathematics or in fact 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, mortgage, or actually, even better, just 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 just go to this URL and then you'll see all of the files there and then you can just download this file if you wish to play with it. However what it does here is 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 buying a $500,000 home. It's a 25 percent deposit, so that's the $125,000 that I had saved up, that I 'd discussed right over there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to need 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 mortgage, fixed rate, fixed rate, which implies the rate of interest will not change. We'll discuss that in a little bit. This 5.5 percent that I am paying on my, on the cash that I borrowed will not alter throughout the 30 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 talk about that in a 2nd, we can neglect it in the meantime. And after that these other things that aren't in brown, you shouldn't tinker these if you really do open up this spreadsheet yourself.
So, it's literally the annual rates of interest, 5.5 percent, divided by 12 and the majority of mortgage are compounded on a regular monthly basis. So, at the end of each month they see how much cash you owe and then they will charge you this much interest on that for the month.
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It's in fact a pretty interesting problem. But for a $500,000 loan, well, a $500,000 house, a $375,000 loan over thirty years at a 5.5 http://camrusukeb.nation2.com/the2 percent rate of interest. My mortgage payment is going to be roughly $2,100. Now, right when I purchased your home I want to present 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 assuming that it's worth $500,000. That is an asset. It's a property due to the fact that it gives you future advantage, the future advantage 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 debt.
If this was all of your possessions and this is all of your financial obligation and if you were essentially to offer the properties 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.
However 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 debt and you would get in your pocket $125,000, which is precisely what your original deposit was but this is your equity.