Bank, can you lend me the remainder of the quantity I require 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 states, sure, you look like, uh, uh, a great guy with a good job who has a good credit score.
We need to have that title of your home and when you pay off the loan we're going to offer you the title of the house. So what's going to happen 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 buy to let mortgages work uk.
But the title of your house, the file that states who really owns your home, so this is the house title, this is the title of the house, home, house 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, maybe 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 loan is. This pledging of the title for, as the, as the security for the loan, that's what a home loan 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, but it originates from dead promise.
When I pay off the loan this promise 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 mortgage. And most likely since it originates from old French is the reason we don't state mort gage. We say, mortgage.
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They're actually referring to the mortgage, mortgage, the home loan. And what I wish to perform in the rest of this video is use a little screenshot from a spreadsheet I made to in fact reveal you the mathematics or actually 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, mortgage, or actually, even much better, just go to the download, simply go to the downloads, downloads, uh, folder on your web internet browser, you'll see a bunch of files and it'll be the file called home loan calculator, home loan calculator, calculator dot XLSX.
However just go to this URL and then you'll see all of the files there and after that you can simply download this file if you want to play with it. how do fixed rate mortgages work. However what it does here is in this type 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 purchasing a $500,000 house. It's a 25 percent down payment, so that's the $125,000 that I had saved up, that I 'd spoken about right over there. And then the, uh, loan amount, well, I have the $125,000, I'm going to need 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 loan, 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 alter over the course of the thirty 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 speak about that in a second, we can overlook it for now. how do commercial mortgages work. And then these other things that aren't in brown, you should not tinker these if you actually do open up this spreadsheet yourself.
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So, it's actually the annual rate of interest, 5.5 percent, divided by 12 and a lot of home loan loans are intensified on a month-to-month basis. So, at the end of monthly they see 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 intriguing problem. 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 mortgage payment is going to be roughly $2,100. Now, right when I purchased your house I wish to present a bit of vocabulary and we have actually talked about this in some of the other videos.
And we're presuming that it deserves $500,000. We are presuming that it's worth $500,000. That is a property. It's a property since it gives you future benefit, the future benefit of being able to reside in it. Now, there's a liability against that possession, that's the home mortgage loan, that's the $375,000 liability, $375,000 loan or http://johnnyrnor331.trexgame.net/h1-style-clear-both-id-content-section-0-the-greatest-guide-to-buy-to-let-mortgages-how-do-they-work-h1 debt.
If this was all of your possessions and this is all of your debt and if you were basically to sell the possessions and settle the financial obligation. 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 relax this transaction immediately after doing it then you would have, you would have a $500,000 home, 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 down payment was however this is your equity.
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However you might not assume it's consistent and have fun with the spreadsheet a little bit. But 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 sized, let's say at some time this is just $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 thirty years and it passes month. So, so you can picture that there's in fact 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
So, on month absolutely no, which I don't 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, I have not made any home mortgage payments yet.
So, now before I pay any Website link of my payments, rather of owing $375,000 at the end of the very 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 very first home mortgage payment that we calculated, that we calculated right over here (how do reverse mortgages work in california).