Bank, can you lend me the rest of the quantity I require for that house, which is basically $375,000 (how do 2nd 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 states, sure, you seem like, uh, uh, a good guy with an excellent task who has an excellent credit ranking.
We have to have that title of your house and when you settle the loan we're going http://alexiswztq441.fotosdefrases.com/h1-style-clear-both-id-content-section-0-how-do-mortgages-work-when-selling-for-dummies-h1 to offer 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 second mortgages work in ontario.
However the title of your home, the file that states who in fact owns your home, so this is the home title, this is the title of your home, house, 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, perhaps they haven't settled their 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 loan, that's what a home mortgage is. And actually it originates from old French, mort, indicates dead, dead, and the gage, means promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead pledge.
Once I pay off the loan this pledge of the title to the bank will pass away, it'll come back to me. Which's why it's called a dead pledge or a home mortgage. And probably since it comes from old French is the reason why we do not say mort gage. We state, mortgage.
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They're actually referring to the home mortgage, home loan, the mortgage. And what I want to perform in the rest of this video is use 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 home mortgage calculator, home loan, 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 mortgage 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. how adjustable rate mortgages work. But what it does here is in this kind of dark brown color, these are the presumptions that you might input which you can alter these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying a $500,000 home. It's a 25 percent deposit, so that's the $125,000 that I had saved up, that I 'd discussed right there. And then the, uh, loan amount, 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 quite plain vanilla loan.
So, thirty years, it's going to be a 30-year set rate home mortgage, fixed rate, fixed rate, which indicates the rate 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 cash that I borrowed will not change throughout the 30 years.
Now, this little tax rate that I have here, this is to actually determine, what is the tax savings of the interest reduction on my loan? And we'll speak about that in a 2nd, we can overlook it in the meantime. how do reverse mortgages work after death. And after that these other things that aren't in brown, you shouldn't tinker these if you in fact do open up this spreadsheet yourself.
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So, it's actually the yearly interest rate, 5.5 percent, divided by 12 and many home loan loans are compounded on a month-to-month basis. So, at the end of each month they see how much money you owe and then they will charge you this much interest on that for the month.
It's actually a pretty intriguing problem. 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 mortgage payment is going to be roughly $2,100. Now, right when I purchased your house I want to introduce a bit of vocabulary and we've spoken about this in a few of the other videos.
And we're presuming that it deserves $500,000. We are assuming that it's worth $500,000. That is a is wesley financial group legitimate property. It's a possession because it offers you future benefit, the future benefit of being able to live in it. Now, there's a liability versus that possession, that's the mortgage, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your possessions and this is all of your financial obligation and if you were essentially to offer the properties and pay off the debt. If you sell your home you 'd get the title, you can get the cash and then you pay it back to the bank.
But if you were to relax this transaction instantly after doing it then you would have, you would have a $500,000 house, 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 but this is your equity.
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But you might not presume it's constant and have fun with the spreadsheet a bit. However I, what I would, I'm presenting this since as we pay for the debt this number is going to get smaller sized. 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 have actually done here is, well, actually prior to I get to the chart, let me in fact show you how I compute the chart and I do this throughout 30 years and it passes month. So, so you can think of that there's actually 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 obtained $375,000. Now, over the course of that month they're going to charge you 0.46 percent interest, remember that was 5.5 percent divided by 12. 0.46 percent interest on $375,000 is $1,718.75. So, I have not made any home loan payments yet.
So, now prior to I pay any of my payments, rather of owing $375,000 at the end of the first month I owe $376,718. Now, I'm a hero, I'm not going to default on my home loan so I make that first home loan payment that we computed, that we determined right over here (reverse mortgages how they work).