Table of ContentsThe Best Strategy To Use For What Are Jumbo MortgagesThe 5-Second Trick For What Does Ltv Mean In MortgagesThe 7-Minute Rule for How Often Are Mortgages Compounded
There are extremely stringent laws that were passed in recent years that require lenders do their due diligence to give you all the alternatives possible to bring your mortgage present or exit homeownership gracefully. how reverse mortgages work. By comprehending how your mortgage works, you can safeguard your financial investment in your house, and will understand what actions to take if you ever have difficulties making the payments.
What I want to finish with this video is describe what a home loan is however I believe many of us have a least a basic sense of it. But even much better than that actually go into the numbers and comprehend a bit of what you are actually doing when you're paying a home mortgage, what it's made up of and just how much of it is interest versus 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 house that I wish to acquire. It has a cost of, let's say that I require to pay $500,000 to purchase that home, this is the seller of your house right here.
I want to purchase it. I would like to purchase the house. This is me right here. And I've been able to save up $125,000. I have actually been able to conserve up $125,000 however I would truly 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 lend me the remainder of the amount I need for that house, which is essentially $375,000. I'm putting 25 percent down, this right, this right, this number right here, that is 25 percent of $500,000. why are reverse mortgages bad. 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 good guy with a great job who has a good credit score.
We have to have that title of your home and when you pay off the loan we're going to provide 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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But the title of the home, the file that states who actually owns your house, so this is the home title, this is the title of your home, home, house title. It will not go to me. It will go to the bank, the home title will go from the seller, perhaps even the seller's bank, perhaps they have not settled their mortgage, it will go to the bank that I'm obtaining from.
So, this is the security right here. That is technically what a home mortgage is. This vowing of the title for, as the, as the security for the loan, that's what a home mortgage is. And really it comes from old French, mort, indicates dead, dead, and the gage, indicates promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.
When I settle the loan this pledge of the title to the bank will die, it'll return to me (non-federal or chartered banks who broker or lend for mortgages must be registered with). And that's why it's called a dead pledge or a mortgage. And most likely because it comes from old French is the reason that we don't say mort gage. We say, home mortgage.
They're actually referring to the mortgage, home loan, the mortgage loan. And what I wish to do in the rest of this video is use a little screenshot from a spreadsheet I made to in fact reveal you the math or really reveal 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 actually, even 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, home mortgage calculator, calculator dot XLSX.
However simply go to this URL and then you'll see all of the files there and after that you can just download this file if you want to have fun with it. However what it does here is in this sort of dark brown color, these are the assumptions that you might input and that you can change these cells in your spreadsheet without breaking the whole spreadsheet.
I'm buying a $500,000 house. It's a 25 percent down payment, so that's the $125,000 that I had conserved up, that I 'd talked about right there. And then the, uh, loan quantity, well, I have the $125,000, I'm going to need to borrow $375,000. It determines it for us and after that 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 fixed rate mortgage, https://www.businesswire.com/news/home/20191008005127/en/Wesley-Financial-Group-Relieves-375-Consumers-6.7 repaired rate, repaired rate, which indicates the rates of interest will not alter. We'll discuss that in a bit. This 5.5 percent that I am paying on my, on the cash that I borrowed will not alter throughout the 30 years.
Now, this little tax rate that I have here, this is to really determine, what is the tax cost savings of the interest deduction on my loan? And we'll discuss that in a 2nd, we can ignore it for now. And after that these other things that aren't in brown, you should not mess with these if you in fact do open this spreadsheet yourself.
So, it's literally the annual rates of interest, 5.5 percent, divided by 12 and many mortgage are intensified on a monthly basis - why are reverse mortgages bad. So, at the end of each month they see just how weslin financial much money you owe and then they will charge you this much interest on that for the month.
It's really a quite intriguing problem. However for a $500,000 loan, well, a $500,000 home, 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 home I wish to introduce a little bit of vocabulary and we have actually spoken about this in a few of the other videos.
And we're assuming that it's worth $500,000. We are assuming that it's worth $500,000. That is an asset. It's a property due to the fact that it gives you future advantage, the future advantage 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 financial obligation.
If this was all of your assets and this is all of your debt and if you were essentially to sell the possessions and pay off 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.