Table of ContentsThe smart Trick of What Is Required Down Payment On Mortgages That Nobody is Talking AboutThe 5-Second Trick For How Reverse Mortgages WorkOur What Are Subprime Mortgages PDFs
What I desire to finish with this video is discuss what a home mortgage is however I think most of us have a least a general sense of it. However even better than that actually go into the numbers and understand a bit of what you are in fact doing when you're paying a home mortgage, what it's comprised of and just how much of it is interest versus 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 home that I want to acquire (how do reverse mortgages work). It has a cost Take a look at the site here of, let's state that I need to pay $500,000 to buy that home, this is the seller of your house right here.
I want to purchase it. I wish to buy the house. This is me right here - which fico score is used for mortgages. And I have actually had the ability to save up $125,000. why do banks sell mortgages. I've been able to save up $125,000 however I would truly like to reside in that house 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 rest of the quantity I require for that home, 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. 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 appear like, uh, uh, a nice guy with a good task who has a good credit rating.
We have to have that title of your house and when you settle the loan we're going to give 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.
But the title of https://judahuggv223.skyrock.com/3335181552-h1-style-clear-both-id-content-section-0-More-About-What-Are.html your house, the document that says who really owns your home, so this is the home title, this is the title of your house, home, house 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, possibly they haven't settled their home loan, it will go to the bank that I'm borrowing from.
So, this is the security right here. That is technically what a mortgage is. This promising of the title for, as the, as the security for the loan, that's what a mortgage is. And actually it originates from old French, mort, means dead, dead, and the gage, suggests pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead promise.
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Once I pay off the loan this pledge of the title to the bank will die, it'll return to me. Which's why it's called a dead promise or a mortgage. And probably due to the fact that it comes from old French is the reason that we do not state mort gage. which fico score is used for mortgages. We say, home mortgage.
They're really describing the home loan, home mortgage, the home mortgage loan. And what I desire 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 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 home mortgage calculator, home mortgage, or really, even better, just go to the download, just go to the downloads, downloads, uh, folder on your web internet browser, you'll see a bunch of files and it'll be the file called mortgage calculator, mortgage calculator, calculator dot XLSX.
However simply 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 play with it. But what it does here is in this sort 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 house. It's a 25 percent down payment, so that's the $125,000 that I had conserved up, that I 'd discussed right there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to have to obtain $375,000. It determines it for us and after that I'm going to get a pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate home loan, fixed rate, repaired rate, which indicates the rate of interest won't change. We'll speak about that in a bit. This 5.5 percent that I am paying on my, on the cash that I obtained will not change over the course of the 30 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 overlook it in the meantime. And then these other things that aren't in brown, you shouldn't tinker these if you really do open this spreadsheet yourself.
So, it's actually the yearly rate of interest, 5.5 percent, divided by 12 and most home loan are compounded on a monthly basis. So, at the end of monthly they see how much money you owe and then they will charge you this much interest on that for the month.
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It's actually 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 percent rates of interest. My home mortgage payment is going to be roughly $2,100. Now, right when I bought your home I desire to present a bit of vocabulary and we've spoken about this in some 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 an asset since it provides you future benefit, the future advantage of having the ability to live in it. Now, there's a liability against that asset, that's the mortgage, that's the $375,000 liability, $375,000 loan or financial obligation.
If this was all of your possessions and this is all of your debt and if you were essentially to sell the properties and pay off the financial obligation. If you offer your house you 'd get the title, you can get the cash and then you pay it back to the bank.
However if you were to relax this transaction right away 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 original deposit was however this is your equity.