Table of ContentsSome Known Details About Who Offers Reverse Mortgages What Banks Do Reverse Mortgages Fundamentals ExplainedWhat Is A Hud Statement With Mortgages Fundamentals Explained
What I wish to do with this video is discuss what a home loan is however I think most of us have a least a basic sense of it. But even better than that in fact enter into the numbers and comprehend a bit of what you are in fact doing when you're paying a home loan, what it's comprised of and just how much of it is interest versus just how much of it is really paying down the loan.
Let's state that there is a home that I like, let's state that that is your house that I want to purchase (how reverse mortgages work). It has a cost tag of, let's say that I require to pay $500,000 to purchase that house, this is the seller of the house right here.
I wish to purchase it. I would like to purchase the home. 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 save up $125,000. how long are mortgages. I have actually had the ability to conserve up $125,000 however I would actually like to live in that home 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 house, which is basically $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 great guy with a great task who has a great 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 your home. So what's going to occur here http://sergiocjfy274.theglensecret.com/h1-style-clear-both-id-content-section-0-some-ideas-on-why-banks-sell-mortgages-you-should-know-h1 is we're going to have the loan is going to go to me, so it's $375,000, $375,000 loan.
But the title of your home, the file that says who really owns the home, so this is the house title, this is the title of the home, 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, maybe 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 sirius advertisement loan, that's what a mortgage is. And really it originates from old French, mort, means dead, dead, and the gage, means promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead pledge.
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As soon as I settle the loan this pledge of the title to the bank will pass away, it'll return to me. Which's why it's called a dead promise or a home loan. And probably since it originates from old French is the reason that we don't state mort gage. how long are mortgages. We state, home loan.
They're really referring to the home loan, home mortgage, the mortgage. And what I desire to carry out in the rest of this video is use a little screenshot from a spreadsheet I made to in fact reveal you the math or in fact reveal 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 home mortgage calculator, home mortgage, or actually, even 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 mortgage calculator, home mortgage calculator, calculator dot XLSX.
But 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 desire to have fun with it. However what it does here remains in this kind of dark brown color, these are the assumptions that you could input which 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 saved up, that I 'd discussed right over there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to have to obtain $375,000. It calculates it for us and after that I'm going to get a pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year set rate home mortgage, repaired rate, repaired rate, which suggests the rates of interest won't alter. We'll speak about that in a bit. This 5.5 percent that I am paying on my, on the cash that I obtained will not alter throughout the thirty years.
Now, this little tax rate that I have here, this is to actually find out, what is the tax cost savings of the interest reduction on my loan? And we'll speak about that in a 2nd, we can neglect it in the meantime. And after that these other things that aren't in brown, you shouldn't mess with these if you really do open up this spreadsheet yourself.
So, it's actually the yearly rate of interest, 5.5 percent, divided by 12 and many mortgage are intensified on a regular monthly basis. So, at the end of monthly they see how much cash you owe and then they will charge you this much interest on that for the month.
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It's actually a pretty interesting problem. But for a $500,000 loan, well, a $500,000 house, a $375,000 loan over 30 years at a 5.5 percent interest rate. My home loan 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 have actually talked about this in a few of the other videos.
And we're presuming that it deserves $500,000. We are assuming that it deserves $500,000. That is an asset. It's a possession due to the fact that it gives you future advantage, the future advantage of having the ability to reside in it. Now, there's a liability versus that property, that's the home loan, 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 basically to sell the assets and settle the financial obligation. If you sell your home you 'd get the title, you can get the money and after that you pay it back to the bank.
But if you were to relax this deal instantly after doing it then you would have, you would have a $500,000 house, you 'd pay off your $375,000 in financial obligation and you would get in your pocket $125,000, which is precisely what your original deposit was however this is your equity.