Table of ContentsThe Main Principles Of How Do 2nd Mortgages Work The 45-Second Trick For What Are The Debt To Income Ratios For MortgagesUnknown Facts About What Are Reverse Mortgages And How Do They Work
There are very strict laws that were passed in recent years that require lending institutions do their due diligence to offer you all the options possible to bring your home mortgage present or exit homeownership gracefully. what does it mean when economists say that home buyers are "underwater" on their mortgages?. By comprehending how your mortgage works, you can protect your investment in your house, and will understand what actions to take if you ever have obstacles making the payments.
What I wish to do with this video is explain what a mortgage is but I think the majority of us have a least a general sense of it. But even much better than that actually enter into the numbers and comprehend a little bit of what you are actually doing when you're paying a home loan, 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 state that that is the house that I would like to acquire. It has a cost of, let's state that I require to pay $500,000 to purchase that home, this is the seller of the house right here.
I would like to purchase it. I wish to buy your home. This is me right here. And I've had the ability to conserve up $125,000. I have actually been able to conserve up $125,000 but 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 remainder of the quantity I need 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. how much can i borrow mortgages. 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 good person with a good job who has a good credit rating.
We have to have that title of your house and as soon as you pay off the loan we're going to give you the title of the house. So what's going to occur here is we're going to have the loan is going to go to me, so it's $375,000, $375,000 loan.
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But the title of your home, the file that states who really owns your house, so this is the house title, this is the title of your house, home, 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, possibly they have not 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 vowing of the title for, as the, as the security for the loan, that's what a home mortgage is. And in fact it comes from old French, mort, indicates dead, dead, and the gage, means pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.
Once I settle the loan this pledge of the title to the bank will pass away, it'll return to me (reverse mortgages are most useful for elders who). And that's why it's called a dead pledge or a home mortgage. And probably because it comes from old French is the reason we don't say mort gage. We state, home loan.
They're truly referring to the home loan, home loan, the mortgage loan. And what I wish to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to in fact show you the mathematics or actually 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 mortgage calculator, mortgage, or really, even much better, simply go to the download, simply go to the downloads, downloads, uh, folder on your web internet browser, you'll see a https://finance.yahoo.com/news/wesley-financial-group-sees-increase-150000858.html 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 simply download this file if you desire to have fun with it. But what it does here remains in this sort of dark brown color, these are the presumptions that you might input and that you can alter these how to cancel sirius radio cells in your spreadsheet without breaking the entire spreadsheet.
I'm purchasing 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 amount, well, I have the $125,000, I'm going to need to borrow $375,000. It computes it for us and after that I'm going to get a pretty plain vanilla loan.
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So, 30 years, it's going to be a 30-year set rate mortgage, fixed rate, fixed rate, which indicates the rates of interest will not alter. We'll speak about that in a little bit. This 5.5 percent that I am paying on my, on the money 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 really find out, what is the tax 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 tinker these if you really 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 loans are intensified on a month-to-month basis - when to refinance mortgages. So, at the end of monthly they see just how much cash you owe and after that they will charge you this much interest on that for the month.
It's really a pretty fascinating problem. But for a $500,000 loan, well, a $500,000 home, a $375,000 loan over thirty years at a 5.5 percent rate of interest. My home loan payment is going to be roughly $2,100. Now, right when I purchased your house I want to present a little bit of vocabulary and we have actually talked 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 a possession. It's an asset since it gives you future benefit, the future advantage of being able to reside in it. Now, there's a liability versus that property, that's the home mortgage loan, 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 basically to offer the assets and settle the debt. If you sell the house you 'd get the title, you can get the cash and then you pay it back to the bank.