Bank, can you lend me the rest of the quantity I require for that house, which is essentially $375,000 (how do reverse mortgages work?). 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 great job 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 offer 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 - how do mortgages work in canada.
But the title of your home, the file that says who actually owns your home, 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, perhaps even the seller's bank, perhaps they haven't paid off their home loan, it will go to the bank that I'm obtaining 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 mortgage is. And in fact it originates from old French, mort, indicates dead, dead, and the gage, indicates promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead promise.
When 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 pledge or a mortgage. And most likely because it originates from old French is the reason we do not say mort gage. We say, home mortgage.
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They're really describing the home loan, home mortgage, the home loan. And what I desire to carry out in the rest of this video is utilize a little screenshot from a spreadsheet I made to really show you the mathematics or in fact reveal 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 loan calculator, mortgage, or really, even much better, just go to the download, just 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 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 want to play with it. how do reverse mortgages work example. But what it does here is in this type of dark brown color, these are the assumptions that you might input which you can alter these cells in your spreadsheet without breaking the entire spreadsheet.
I'm purchasing a $500,000 house. It's a 25 percent deposit, so that's the $125,000 that I had actually saved up, that I 'd discussed right there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to need to obtain $375,000. It determines it for us and then I'm going to get a pretty 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 interest rate will not change. We'll discuss that in a little bit. This 5.5 percent that I am paying on my, on the money that I borrowed https://dominickyvjb346.tumblr.com/post/628240023609835520/h1-style-clearboth-id-content-section-0-what will not alter over the course of the thirty years.
Now, this little tax rate that I have here, this is to actually determine, what Check out here is the tax savings of the interest deduction on my loan? And we'll talk about that in a 2nd, we can overlook it for now. how do reverse mortgages work after death. And after that these other things that aren't in brown, you should not mess with these if you really do open up this spreadsheet yourself.
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So, it's actually the yearly interest rate, 5.5 percent, divided by 12 and a lot of mortgage are intensified on a regular monthly basis. So, at the end of monthly they see just how much money you owe and after that they will charge you this much interest on that for the month.
It's really a quite interesting problem. However for a $500,000 loan, well, a $500,000 house, 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 wish to present a little bit of vocabulary and we've spoken about this in a few 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 a possession due to the fact that it gives you future advantage, the future benefit of being able to reside in it. Now, there's a liability against that possession, that's the mortgage, 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 sell the assets and pay off 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 settle your $375,000 in debt 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 consistent and have fun with the spreadsheet a little bit. But I, what I would, I'm presenting this because as we pay down the financial obligation this number is going to get smaller. So, this number is getting smaller, let's state eventually this is just $300,000, then my equity is going to get larger.
Now, what I have actually done here is, well, really prior to I get to the chart, let me in fact show you how I compute the chart and I do this throughout thirty years and it passes month. So, so you can imagine that there's in fact 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
So, on month no, which I don't reveal here, you borrowed $375,000. Now, over the course of that month they're going to charge you 0.46 percent interest, keep in mind 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 home 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 an excellent man, I'm not going to default on my mortgage so I make that very first mortgage payment that we computed, that we computed right over here (how do cash back mortgages work in canada).