Bank, can you provide me the rest of the quantity I need for that home, which is basically $375,000 (how do buy to rent 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 appear like, uh, uh, a good person with a great job who has a great credit score.
We have to have that title of your home and once you pay off the loan we're going to provide you the title of your home. So what's going to happen here https://telegra.ph/h1-styleclearboth-idcontentsection0what-does-how-does-having-2-mortgages-work-meanh1-09-03 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.
But the title of your home, the file that says who really owns the house, 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, possibly even the seller's bank, perhaps they haven't 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 home loan is. This promising 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, means dead, dead, and the gage, suggests promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead pledge.
Once I settle 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 home mortgage. And most likely since it originates from old French is the reason that we don't state mort gage. We say, mortgage.
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They're truly describing the home loan, home mortgage, the mortgage. And what I want to carry out in the rest of this video is utilize a little screenshot from a spreadsheet I xm radio phone number to cancel made to really reveal you the math or actually 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 home loan calculator, home loan, or in fact, even better, just go to the download, just go to the downloads, downloads, uh, folder on your web internet browser, you'll see a lot of files and it'll be the file called home mortgage calculator, home mortgage calculator, calculator dot XLSX.
But simply 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 reverse mortgages really 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 there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to need to borrow $375,000. It computes it for us and after that I'm going to get a quite plain vanilla loan.
So, 30 years, it's going to be a 30-year set rate mortgage, fixed rate, fixed rate, which implies the rates 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 money that I borrowed will not change throughout the 30 years.
Now, this little tax rate that I have here, this is to really figure 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 in the meantime. explain how mortgages work. And then these other things that aren't in brown, you shouldn't tinker these if you really do open this spreadsheet yourself.
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So, it's literally the yearly interest rate, 5.5 percent, divided by 12 and a lot of home loan are intensified on a monthly basis. So, at the end of every month they see how much cash you owe and after that they will charge you this much interest on that for the month.
It's really a pretty fascinating problem. But for a $500,000 loan, well, a $500,000 house, a $375,000 loan over thirty years at a 5.5 percent rate of interest. My mortgage payment is going to be roughly $2,100. Now, right when I purchased your house I desire to introduce a little bit of vocabulary and we've talked about this in some of the other videos.
And we're presuming that it deserves $500,000. We are assuming that it deserves $500,000. That is an asset. It's a possession since it gives you future advantage, the future benefit of having the ability to live in it. Now, there's a liability versus that asset, that's the mortgage loan, that's the $375,000 liability, $375,000 loan or financial obligation.
If this was all of your possessions and this is all of your debt and if you were essentially to offer the properties and pay off the financial obligation. If you sell your 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 immediately after doing it then you would have, you would have a $500,000 house, you 'd settle your $375,000 in financial obligation and you would get in your pocket $125,000, which is precisely what your original deposit 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. However I, what I would, I'm presenting this since as we pay down the financial obligation this number is going to get smaller sized. So, this number is getting smaller, let's say at some point this is just $300,000, then my equity is going to get larger.
Now, what I've done here is, well, really before I get to the chart, let me actually reveal you how I calculate the chart and I do this over the course of 30 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 reveal here, you borrowed $375,000. Now, throughout that month they're going to charge you 0.46 percent interest, bear 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 loan payments yet.
So, now before 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 mortgage so I make that very first home loan payment that we calculated, that we calculated right over here (how reverse mortgages work).