Bank, can you lend me the rest of the quantity I need for that home, which is essentially $375,000 (how do mortgages work in canada). 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 says, sure, you seem like, uh, uh, a good guy with a great job who has a good credit score.
We need to have that title of the house and once you settle the loan we're going to offer you the title of the home. So what's going to occur 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 mortgages work.
But the title of your home, the document that states who really owns the home, so this is the house title, this is the title of the home, 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, possibly they have not 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 mortgage is. This pledging of the title for, as the, as the security for the loan, that's what a mortgage is. And actually it originates from old French, mort, means dead, dead, and the gage, means promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead pledge.
As soon as I settle the loan this pledge 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 comes from old French is the reason why we don't state mort gage. We say, home loan.
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They're really describing the home loan, home loan, the home mortgage loan. And what I want to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to really reveal you the math or actually show 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, mortgage, or actually, even much better, simply 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 mortgage calculator, home mortgage calculator, calculator dot XLSX.
But simply go to this URL and then you'll see all of the files there and then you can simply download this file if you wish to have fun with it. how do points work in mortgages. However what it does here is in this sort of dark brown color, these are the presumptions that you could input and that 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 after that the, uh, loan amount, well, I have the $125,000, I'm going to have to borrow $375,000. It calculates it for us and then I'm going to get a pretty plain vanilla loan.
So, thirty years, it's going to https://troymlaf542.hatenablog.com/entry/2020/09/06/180356 be a 30-year set rate home mortgage, repaired rate, repaired rate, which suggests the rates of interest won't alter. We'll discuss that in a bit. This 5.5 percent that I am paying on my, on the money that I borrowed will not change over the course of the thirty years.
Now, this little tax rate that I have here, this is to really determine, what is the tax savings of the interest deduction on my loan? And we'll talk about that in a second, we can disregard it for now. how do assumable mortgages work. And after that these other things that aren't in brown, you should not mess with these if you really do open up this spreadsheet yourself.
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So, it's literally the annual rate of interest, 5.5 percent, divided by 12 and many home loan are compounded on a monthly basis. So, at the end of each month they see how much money you owe and after that they will charge you this much interest on that for the month.
It's in fact a quite intriguing problem. However for a $500,000 loan, well, a $500,000 house, a $375,000 loan over 30 years at a 5.5 percent interest rate. My home loan payment is going to be roughly $2,100. Now, right when I purchased your house I wish to introduce a bit of vocabulary and we've talked 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 an asset since it gives you future advantage, the future benefit of being able to live in it. Now, there's a liability Click here for more info against that property, that's the home 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 essentially to offer the assets 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.
But if you were to unwind this deal right away after doing it then you would have, you would have a $500,000 home, 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 however this is your equity.
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However you might not assume it's constant and play with the spreadsheet a bit. However I, what I would, I'm introducing this due to the fact that as we pay down the debt this number is going to get smaller. So, this number is getting smaller sized, let's state eventually this is only $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, actually before I get to the chart, let me in fact reveal you how I determine the chart and I do this throughout thirty years and it goes by month. So, so you can think of 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 zero, which I don't show here, you obtained $375,000. Now, throughout 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 of my payments, instead of owing $375,000 at the end of the very first month I owe $376,718. Now, I'm a great guy, I'm not going to default on my mortgage so I make that very first mortgage payment that we calculated, that we calculated right over here (how do mortgages work in monopoly).