Table of ContentsWhat Does What Are Points In Mortgages Do?How Do Reverse Mortgages Work? - An OverviewHow Do Reverse Mortgages Work for Dummies
What I want to make 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 in fact go into the numbers and understand a bit of what you are in fact doing when you're paying a home mortgage, what it's made up of and just 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 house that I like, let's say that that is your home that I want to purchase (reverse mortgages are most useful for elders who). It has a cost tag of, let's say that I require to pay $500,000 to buy that home, this is the seller of your home right here.
I would like to purchase it. I want to buy your home. This is me right here - how do reverse mortgages work. And I've had the ability to conserve up $125,000. what is a fixed rate mortgages. I've been able to conserve up $125,000 however I would actually 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 lend me the rest of the amount 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 good guy with an excellent task who has a good credit rating.
We have to have that title of the home and when you settle the loan we're going to give you the title of the home. 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.
But the title of your home, the document that says who really owns your home, so this is the home title, this is the title of your home, home, home title. It will not go to me. It will go to the bank, the home title will go from the seller, maybe even the seller's bank, possibly they haven't settled their mortgage, 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 mortgage is. And actually it comes from old French, mort, indicates dead, dead, and the gage, indicates pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead pledge.
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When I settle the loan this promise of the title to the bank will pass away, it'll return to me. Which's why it's called a dead pledge or a home loan. And probably because it originates from old French is the reason why we do not say mort gage. how many mortgages can you have. We say, mortgage.
They're actually referring to the mortgage, home loan, 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 actually reveal you the mathematics 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 mortgage calculator, home loan, or in fact, even better, just go to the download, simply go to the downloads, downloads, uh, folder on your web browser, you'll see a lot of files and it'll be the file called home loan calculator, mortgage calculator, calculator dot XLSX.
However just go to this URL and then you'll see all of the files there and then you can just download this file if you wish to play with it. 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 alter these cells in your spreadsheet without breaking the whole spreadsheet.
I'm purchasing a $500,000 house. It's a 25 percent down payment, so that's the $125,000 that I had actually saved up, that I 'd talked about right over there. And then 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 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 loan, fixed rate, fixed rate, which means the rates here of interest will not alter. We'll talk about that in a 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 30 years.
Now, this little tax rate that I have here, this is to in fact find out, what is the tax cost savings of the interest reduction on my loan? And we'll discuss that in a 2nd, we can ignore 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 interest rate, 5.5 percent, divided by 12 and most mortgage are compounded on a month-to-month basis. So, at the end of every month they see how much money you owe and after that they will charge you this much interest on that for the month.
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It's actually a pretty fascinating issue. But for a $500,000 loan, well, a $500,000 house, a $375,000 loan over thirty 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 house I wish to present a little bit of vocabulary and we've discussed this in some of the other videos.
And we're assuming that it's worth $500,000. We are assuming that it deserves $500,000. That is an asset. It's a possession because it provides you future advantage, the future advantage of being able 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 possessions and this is all http://brooksxave348.tearosediner.net/the-5-minute-rule-for-what-are-today-s-interest-rates-on-mortgages of your financial obligation and if you were essentially to sell the assets and settle the financial obligation. If you sell the home you 'd get the title, you can get the cash and after that you pay it back to the bank.
But if you were to unwind this transaction right away 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 deposit was however this is your equity.