Bank, can you lend me the remainder of the amount I need for that house, which is essentially $375,000 (reverse mortgages how do they 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 person with a great job who has a good credit score.
We need to have that title of the 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 is we're going to have the loan is going to go to me, so it's $375,000, $375,000 loan - how do reverse mortgages really work.
But the title of the house, the file that states who in fact owns your home, so website this is the home title, this is the title of your home, home, house title. It will not go to me. It will go to the bank, the home title will go from the seller, perhaps even the seller's bank, maybe they have not paid off 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 mortgage is. This pledging of the title for, as the, as the security for the loan, that's what a home loan is. And in fact it comes from old French, mort, suggests dead, dead, and the gage, indicates pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead promise.
When I settle the loan this pledge of the title to the bank will die, it'll come back to me. Which's why it's called a dead pledge or a home loan. And probably due to the fact that it comes from old French is the reason that we don't state mort gage. We state, mortgage.
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They're really describing the mortgage, home loan, the home 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 actually show you the math or in fact reveal you what your home loan 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.
But just go to this URL and after that you'll see all of the files there and then you can just download this file if you wish to have fun with it. how do mortgages payments work. However what it does here is in this sort of dark brown color, these are the presumptions that you could input and that 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 actually 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 obtain $375,000. It determines 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 mortgage, repaired rate, repaired rate, which indicates the interest rate won't alter. We'll talk 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 30 years.
Now, this little tax rate that I have here, this is to in fact figure out, what is the tax cost savings of the interest deduction on my loan? And we'll talk about that in a second, we can disregard it in the meantime. how mortgages work. And after that these other things that aren't in brown, you shouldn't mess with these if you really do open this spreadsheet yourself.
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So, it's literally the annual rates of interest, 5.5 percent, divided by 12 and the majority of mortgage are compounded on a regular monthly 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 in fact a quite fascinating problem. However for a $500,000 loan, well, a $500,000 home, 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 bit of vocabulary and we've discussed 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 property. It's an asset due to the fact that it provides you future advantage, the future advantage of having the ability to reside in it. Now, there's a liability against that property, that's the home 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 essentially to offer the possessions and pay off the debt. If you offer your home 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 unwind this transaction right away after doing it then you would have, you would have a $500,000 home, you 'd pay off your $375,000 in debt and you would get in your pocket $125,000, which is exactly what your original down payment was however this is your equity.
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But you could not presume it's constant and have fun with the spreadsheet a bit. But I, what I would, I'm introducing this because as we pay down the debt this number is going to get smaller. So, this number is getting smaller sized, let's say eventually this is only $300,000, then my equity is going to get bigger.
Now, what I've done here is, well, actually before I get to the chart, let me really show you how I compute the chart and I do this over the course of 30 years and it passes month. So, so you can think of that there's actually 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.
So, on month no, which I do not show here, you obtained $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, http://marionoyd592.yousher.com/h1-style-clear-both-id-content-section-0-a-biased-view-of-how-do-jumbo-mortgages-work-h1 I have not made any home loan payments yet.
So, now prior to I pay any of my payments, instead of owing $375,000 at the end of the very 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 home mortgage payment that we calculated, that we computed right over here (how do points work in mortgages).