Table of ContentsWhat Are Mortgages Fundamentals ExplainedThe Greatest Guide To What Is The Interest Rate For MortgagesThe Ultimate Guide To How Do Reverse Mortgages Really Work
There are very strict laws that were passed in recent years that need lenders do their due diligence to offer you all the options possible to bring your mortgage existing or exit homeownership gracefully. what are reverse mortgages. By understanding how your mortgage works, you can secure your investment in your home, and will understand what actions to take if you ever have obstacles making the payments.
What I want to do with this video is explain what a home mortgage is but I think many of us have a least a general sense of it. But even much better than that actually go into the numbers and understand a little bit of what you are really doing when you're paying a home loan, what it's made up of and how much of it is interest versus how much of it is actually paying down the loan.
Let's state that there is a house that I like, let's say that that is your house that I would like to acquire. It has a price of, let's say that I need to pay $500,000 to buy that house, this is the seller of your house right here.
I would like to buy it. I wish to buy the home. This is me right here. And I have actually been able to save up $125,000. I have actually had the ability to conserve up $125,000 but I would actually like to reside in that home so I go to a bank, I go to a bank, get a brand-new color for the bank, so that is the bank right there.
Bank, can you lend me the rest of the quantity 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. reverse mortgages how they work. 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 person with a good job who has a great credit rating.
We need to have that title of the house and when you settle the loan we're going to provide you the title of your 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.
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However the title of your home, the document that says who actually owns the home, so this is the home 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 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 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 comes from old French, mort, suggests dead, dead, and the gage, implies promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.
As soon as I settle the could you be more of a wesley loan this promise of the title to the bank will die, it'll return to me (reverse mortgages how they work). Which's why it's called a dead pledge or a mortgage. And probably due to the fact that it originates from old French is the reason we don't state mort gage. We say, mortgage.
They're truly 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 actually show you the mathematics or really show you what your 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, home mortgage, or in fact, even much better, just go to the download, simply 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 loan calculator, calculator dot XLSX.
However just go to this URL and after that you'll see all of the files there and after that you can simply download this file if you wish to play with it. But what it does here is in this sort of dark brown color, these are the assumptions that you could input and that you can change these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying a $500,000 house. It's a 25 percent deposit, so that's the $125,000 that I had actually saved up, that I 'd talked 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.
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So, 30 years, it's going to be a 30-year fixed rate home mortgage, fixed rate, fixed rate, which means the rate of interest will not change. We'll speak about that in a bit. This 5.5 percent that I am paying on my, on the money that I obtained will not change throughout the 30 years.
Now, this little tax rate that I have here, this is to in fact figure out, what is the tax cost savings of the interest deduction on my loan? And we'll talk about that in why did chuck get cancelled a second, we can ignore it for now. And after that these other things that aren't in brown, you should not tinker these if you in fact do open up this spreadsheet yourself.
So, it's literally the yearly rates of interest, 5.5 percent, divided by 12 and many mortgage are compounded on a monthly basis - how do reverse mortgages work. 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 interesting 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 home mortgage payment is going to be roughly $2,100. Now, right when I bought your house I want to introduce a little bit of vocabulary and we've discussed this in some of the other videos.
And we're assuming that it's worth $500,000. We are assuming that it deserves $500,000. That is an asset. It's an asset since it gives you future benefit, the future benefit of being able to reside in it. Now, there's a liability versus that property, that's the mortgage, 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 basically to offer the possessions and settle the debt. If you sell the home you 'd get the title, you can get the money and then you pay it back to the bank.