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What I wish to do with this video is discuss what a home mortgage is however I think many of us have a least a general sense of it. But even better than that really go into the numbers and understand a bit of what you are actually 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 really paying for the loan.
Let's say that there is a home that I like, let's say that that is your house that I would like to acquire (which type of credit is usually used for http://dallaspqst438.image-perth.org/h1-style-clear-both-id-content-section-0-the-smart-trick-of-what-are-the-debt-to-income-ratios-for-mortgages-that-nobody-is-discussing-h1 cars). It has a price of, let's say that I require to pay $500,000 to buy that home, this is the seller of the home right here.
I want to buy it. I want to purchase your house. This is me right here - what does it mean when economists say that home buyers are "underwater" on their mortgages?. And I have actually had the ability to conserve up $125,000. what is a fixed rate mortgages. I have actually had the ability to save up $125,000 however I would really like to live in that house so I go to a bank, I go to a bank, get a brand-new color for the bank, so that is the bank right there.
Bank, can you provide me the remainder of the quantity I need 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. 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 appear like, uh, uh, a nice guy with a good job who has a good credit rating.
We need to have that title of your home and when you pay off the loan we're going to give you the title of the 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.
However the title of your home, the file that says who in fact owns the home, so this is the house title, this is the title of your home, house, 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, maybe 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 home loan is. This pledging of the title for, as the, as the security for the loan, that's what a home loan is. And really it comes from old French, mort, suggests dead, dead, and the gage, implies promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.
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Once I pay off the loan this pledge of the title to the bank will die, it'll come back to me. And that's why it's called a dead pledge or a home loan. And probably since it comes from old French is the factor why we do not say mort gage. what is the current interest rate for mortgages. We state, home mortgage.
They're truly describing the home loan, home mortgage, the home mortgage loan. And what I wish to perform 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 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 mortgage, or actually, even much 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 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 just download this file if you want to have fun with it. However what it does here remains in this type of dark brown color, these are the presumptions that you might input and that 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 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 have to obtain $375,000. It calculates it timeshare sell for us and after that I'm going to get a quite plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate home mortgage, fixed rate, repaired rate, which suggests the interest rate will not alter. We'll discuss that in a little 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 thirty years.
Now, this little tax rate that I have here, this is to in fact determine, what is the tax savings of the interest reduction on my loan? And we'll speak about that in a second, we can neglect it for now. And after that these other things that aren't in brown, you shouldn't tinker these if you actually do open this spreadsheet yourself.
So, it's actually the annual rate of interest, 5.5 percent, divided by 12 and the majority of home loan are intensified on a month-to-month basis. So, at the end of every month they see just how much money you owe and after that they will charge you this much interest on that for the month.
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It's really a pretty intriguing 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 loan payment is going to be roughly $2,100. Now, right when I purchased the house I desire to present a bit of vocabulary and we have actually spoken about this in some of the other videos.
And we're assuming that it's worth $500,000. We are presuming that it's worth $500,000. That is a possession. It's an asset since it offers you future benefit, the future benefit of being able 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 assets and this is all of your debt and if you were essentially to offer the properties and pay off the financial obligation. If you sell your home you 'd get the title, you can get the money and then you pay it back to the bank.
However if you were to unwind 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 initial deposit was but this is your equity.