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There are really stringent laws that were passed in current years that require loan providers do their due diligence to provide you all the alternatives possible to bring your home mortgage existing or exit homeownership gracefully. which fico score is used for mortgages. By comprehending how your mortgage works, you can safeguard your financial investment in your house, and will know what actions to take if you ever have challenges making the payments.
What I wish to finish with this video is explain what a home loan is but I think the majority of us have a least a general sense of it. But even better than that in fact go into the numbers and comprehend a little bit of what you are in fact doing when you're paying a mortgage, what it's made up of and just how much of it is interest versus just how much of it is in fact paying down the loan.
Let's say that there is a house that I like, let's say that that is the home that I wish to purchase. It has a rate tag of, let's say that I require to pay $500,000 to buy that house, this is the seller of your home right here.
I would like to buy it. I would like to buy your home. This is me right here. And siriusxm nashville address I have actually been able to conserve up $125,000. I've had the ability to save up $125,000 however I would really like to reside in that house so I go to a bank, I go to a bank, get a new color for the bank, so that is the bank right there.
Bank, can you provide me the rest of the amount I require for that home, which is basically $375,000. I'm putting 25 percent down, this right, this right, this number right here, that is 25 percent of $500,000. how reverse mortgages work. 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 person with a great job who has an excellent credit rating.
We need to have that https://www.facebook.com/ChuckMcDowellCEO/ title of the home and as soon as you settle the loan we're going to offer you the title of your house. 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.
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However the title of the home, the document that states who actually owns the house, so this is the house title, this is the title of the house, house, house 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 haven't paid off their home 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 vowing of the title for, as the, as the security for the loan, that's what a home loan is. And really it comes from old French, mort, means dead, dead, and the gage, means pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead pledge.
Once I settle the loan this pledge of the title to the bank will pass away, it'll return to me (what are mortgages interest rates today). And that's why it's called a dead pledge or a mortgage. And probably due to the fact that it comes from old French is the reason that we don't say mort gage. We state, home mortgage.
They're actually describing the mortgage, home loan, the home loan. And what I wish to perform in the rest of this video is utilize a little screenshot from a spreadsheet I made to actually show you the mathematics or really 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 mortgage calculator, mortgage, or really, even much better, just go to the download, simply go to the downloads, downloads, uh, folder on your web browser, you'll see a lot of files and it'll be the file called home loan calculator, mortgage calculator, calculator dot XLSX.
But simply 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 desire to play with it. But what it does here remains in this kind of dark brown color, these are the presumptions that you could input which you can alter these cells in your spreadsheet without breaking the entire 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 there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to need to obtain $375,000. It determines it for us and then I'm going to get a pretty plain vanilla loan.
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So, 30 years, it's going to be a 30-year set rate home mortgage, fixed rate, fixed rate, which suggests the interest rate won't change. We'll talk 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 throughout 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 talk about that in a second, we can disregard it for now. And after that these other things that aren't in brown, you shouldn't tinker these if you really do open this spreadsheet yourself.
So, it's actually the annual rate of interest, 5.5 percent, divided by 12 and the majority of home loan are compounded on a month-to-month basis - how many mortgages can you have. So, at the end of every 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 pretty fascinating issue. But for a $500,000 loan, well, a $500,000 home, 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 bought the house I wish to present a little bit of vocabulary and we have actually discussed this in a few of the other videos.
And we're assuming that it deserves $500,000. We are assuming that it deserves $500,000. That is a property. It's an asset since it gives you future benefit, the future advantage of having the ability to live in it. Now, there's a liability versus that property, that's the mortgage 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 financial obligation and if you were basically to sell the assets and settle the debt. If you offer the home you 'd get the title, you can get the money and after that you pay it back to the bank.