Bank, can you lend me the rest of the quantity I require for that home, which is essentially $375,000 (how do buy to rent 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 seem like, uh, uh, a nice person with a good task who has a good credit score.
We need to have that title of your house and as soon as you pay off the loan we're going to offer 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 - buy to let mortgages how do they work.
However the title of the house, the file that states who in fact owns the house, so this is the house title, this is the title of your home, house, 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, maybe they have not settled 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 https://www.openlearning.com/u/chesser-qfm1ry/blog/H1StyleclearbothIdcontentsection0FactsAboutHowDoesUnderwritingWorkForMortgagesUncoveredh1/ loan is. This vowing of the title for, as the, as the security for the loan, that's what timeshare cancellation a home loan is. And really it comes from old French, mort, means dead, dead, and the gage, implies pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead pledge.
Once I settle 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 promise or a mortgage. And most likely due to the fact that it comes from old French is the factor why we do not say mort gage. We say, home mortgage.
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They're actually describing the mortgage, home loan, the home mortgage loan. And what I wish to do in the rest of this video is use a little screenshot from a spreadsheet I made to actually show you the math or in fact 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 loan calculator, mortgage, or actually, even much better, simply go to the download, just go to the downloads, downloads, uh, folder on your web internet browser, you'll see a lot 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 after that you can simply download this file if you want to have fun with it. how do mortgages work in canada. But what it does here is in this kind of dark brown color, these are the assumptions that you could input and that you can change 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 saved up, that I 'd spoken about right over there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to have to borrow $375,000. It computes it for us and then I'm going to get a quite plain vanilla loan.
So, thirty years, it's going to be a 30-year fixed rate home loan, 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 paying on my, on the cash that I borrowed will not change throughout the thirty years.
Now, this little tax rate that I have here, this is to actually figure out, what is the tax savings of the interest deduction on my loan? And we'll speak about that in a 2nd, we can overlook it in the meantime. how do reverse mortgages work in california. And after that these other things that aren't in brown, you shouldn't tinker these if you really do open this spreadsheet yourself.
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So, it's actually the yearly rate of interest, 5.5 percent, divided by 12 and many mortgage are compounded on a month-to-month basis. So, at the end of each month they see just how much money you owe and then they will charge you this much interest on that for the month.
It's actually a quite intriguing problem. But for a $500,000 loan, well, a $500,000 home, a $375,000 loan over 30 years at a 5.5 percent interest rate. My mortgage payment is going to be approximately $2,100. Now, right when I bought your home I wish to introduce a little bit of vocabulary and we've spoken about this in a few of the other videos.
And we're assuming that it's worth $500,000. We are presuming that it deserves $500,000. That is a property. It's an asset since it gives you future advantage, the future advantage of having the ability to reside in it. Now, there's a liability against that asset, that's the home loan, 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 financial obligation and if you were essentially to offer the assets and pay off the financial obligation. If you sell your house you 'd get the title, you can get the money and after that you pay it back to the bank.
However if you were to unwind this transaction right away after doing it then you would have, you would have a $500,000 house, you 'd pay off your $375,000 in debt and you would get in your pocket $125,000, which is exactly what your original deposit was but this is your equity.
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But you could not assume it's continuous and have fun with the spreadsheet a little bit. But I, what I would, I'm presenting this due to the fact that as we pay for the debt this number is going to get smaller sized. So, this number is getting smaller sized, let's state at some point this is only $300,000, then my equity is going to get larger.
Now, what I've done here is, well, in fact before I get to the chart, let me really show you how I calculate the chart and I do this over the course of thirty years and it passes month. So, so you can picture that there's actually 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
So, on month absolutely no, which I don't reveal here, you obtained $375,000. Now, throughout that month they're going to charge you 0.46 percent interest, bear in mind that was 5.5 percent divided by 12. 0.46 percent interest on $375,000 is $1,718.75. So, I have not 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 a hero, I'm not going to default on my home loan so I make that first mortgage payment that we calculated, that we determined right over here (how do arm mortgages work).