Bank, can you lend me the remainder of the amount I need for that house, which is essentially $375,000 (how reverse 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 appear like, uh, uh, a great guy with a great task who has a good credit score.
We have to have that title of your home 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 take place 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 work after death.
However the title of the house, the document that says who really owns the house, so this is the home 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, maybe 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 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, indicates dead, dead, and the gage, implies promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead promise.
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 home loan. And probably because it comes from old French is the reason we don't state mort gage. We state, mortgage.
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They're actually referring to the home loan, home mortgage, the mortgage. And what I wish to carry out in the rest of this video is use a little screenshot from a spreadsheet I made to actually show you the math or really show 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, home loan, or really, even better, simply 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 home mortgage calculator, mortgage calculator, calculator dot XLSX.
But 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 have fun with it. how do 2nd mortgages work. However what it does here is in this type of dark brown color, these are the presumptions that you could input which you can change these cells in your spreadsheet without breaking the whole 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 discussed right over there. And then the, uh, loan amount, well, I have the $125,000, I'm going to have to obtain $375,000. It computes 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 loan, fixed rate, fixed rate, which means the rate of interest will not change. We'll speak about that in a little 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 determine, what is the tax cost savings of the interest deduction on my loan? And we'll speak about that in a 2nd, we can overlook it for now. how do mortgages work. And after that these other things that aren't in brown, you shouldn't mess with these if you in fact do open up this spreadsheet yourself.
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So, it's literally the yearly interest rate, 5.5 percent, divided by 12 and the majority of home loan are intensified on a regular monthly basis. So, at the end of every month they see just how much money you owe and after that they will charge you this much interest on that for the month.
It's actually a pretty intriguing issue. But for a $500,000 loan, well, a $500,000 home, a $375,000 loan over thirty years at a 5.5 percent interest rate. My home mortgage payment is going to be roughly $2,100. Now, right when I bought your home I wish to introduce a little bit of vocabulary and we have actually discussed 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 a possession since it provides you future advantage, the future benefit of having the ability to reside in it. Now, there's a liability versus that property, that's the mortgage, 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 sell the properties and settle the debt. If you sell the house 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 instantly after doing it then you would have, you would have a $500,000 home, you 'd pay off your $375,000 wesley foundation jobs in financial obligation and you would get in your pocket $125,000, which is exactly what your initial deposit was but this is your equity.
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However you might not presume it's consistent and have fun with the spreadsheet a bit. However I, what I would, I'm introducing this since as we pay for the debt this number is going to get smaller sized. So, this number is getting smaller, let's state at some point this is just $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, in fact prior to 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 picture that there's really 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
So, on month no, which I do not reveal here, you borrowed $375,000. Now, throughout that month they're going to charge you 0.46 percent interest, remember that was 5.5 percent divided by 12. 0.46 http://lukasyksq966.jigsy.com/entries/general/indicators-on-what-are-mortgages-you-need-to-know percent interest on $375,000 is $1,718.75. So, I have not made any 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 great man, I'm not going to default on my home loan so I make that first home loan payment that we determined, that we determined right over here (how do reverse mortgages work?).