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There are really rigorous laws that were passed in current years that need loan providers do their due diligence to give you all the choices possible to bring your home mortgage present or exit homeownership gracefully. what are subprime mortgages. By understanding how your home loan works, you can safeguard your financial investment in your house, and will understand what actions to take if you ever have difficulties making the payments.
What I want to finish with this video is discuss what a home loan is but I believe most of us have a least a general sense of it. But even better than that really enter 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 just how much of it is interest versus just how much of it is in fact paying down the loan.
Let's say that there is a home that I like, let's state that that is your house that I want to acquire. It has a cost of, let's state that I need to pay $500,000 to purchase that home, this is the seller of the house right here.
I want to purchase it. I wish to purchase your house. This is me right here. And I've been able to save up $125,000. I've been able to conserve up $125,000 but I would truly like to live in that home 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 lend me the remainder of the amount 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. what is the interest rate for mortgages. 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 good man with a good job who has an excellent credit rating.
We need to have that title of your home and once you settle the loan we're going to offer you the title of the 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.
https://www.inhersight.com/companies/best/industry/finance id="content-section-1">The 7-Minute Rule for What Is The Interest Rate On Reverse Mortgages
But the title of your home, the file that states who in fact owns the house, 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 home title will go from the seller, perhaps even the seller's bank, perhaps they have not 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 mortgage is. This promising of the title for, as the, as the security for the loan, that's what a home loan is. And in fact it originates from old French, mort, implies dead, dead, and the gage, suggests promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.
As soon as I settle the loan this pledge of the title to the bank will pass away, it'll return to me (how do second mortgages work). Which's why it's called a dead promise or a home loan. And probably because it comes from old French is the factor why we don't say mort gage. We say, home mortgage.
They're actually referring to the home loan, mortgage, the home loan. And what I want to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to actually reveal you the mathematics or really reveal 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 loan calculator, home mortgage, or in fact, even much 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 home loan calculator, home mortgage calculator, calculator dot XLSX.
However just go to this URL and then you'll see all of the files there and after that you can simply download this file if you wish to have fun with it. However what it does here remains in this sort of dark brown color, these are the presumptions that you might input which you can alter these cells in your spreadsheet without breaking the entire spreadsheet.
I'm purchasing a $500,000 home. It's a 25 percent deposit, so that's the $125,000 that I had actually saved up, that I 'd spoken about right over there. And then 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 then I'm going to get a pretty plain vanilla loan.
Facts About What Is The Current Interest Rate For Home Mortgages Uncovered
So, thirty years, it's going to be a 30-year set rate home mortgage, fixed rate, fixed rate, which means the rates of interest won't change. We'll speak about that in a bit. This 5.5 percent that I am https://finance.yahoo.com/news/wesley-financial-group-sees-increase-150000858.html paying on my, on the money that I obtained will not alter 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 discuss that in a second, we can disregard it for now. And then these other things that aren't in brown, you shouldn't mess with these if you actually do open up this spreadsheet yourself.
So, it's literally the yearly rates of interest, 5.5 percent, divided by 12 and many mortgage are intensified on a monthly basis - how to sell mortgages. 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.
It's actually a quite fascinating problem. But 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 roughly $2,100. Now, right when I bought your home I want to present a little 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 property. It's a property due to the fact that it gives 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 properties and this is all of your debt and if you were essentially to offer the properties and settle the financial obligation. If you sell your home you 'd get the title, you can get the cash and after that you pay it back to the bank.