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There are very stringent laws that were passed in recent years that need lenders do their due diligence to give you all the choices possible to bring your home mortgage present or exit homeownership gracefully. what are mortgages. By comprehending how your mortgage works, you can secure your investment in your house, and will know what actions to take if you ever have difficulties making the payments.
What I wish to do with this video is explain what a home loan is however I believe the majority of us have a least a general sense of it. But even much better than that actually enter into the numbers and understand a little bit of what you are really doing when you're paying a home loan, what it's comprised of and how much of it is interest versus just how much of it is in fact paying for the loan.
Let's say that there is a house that I like, let's state that that is the home that I would like to purchase. It has a rate tag of, let's say that I need to pay $500,000 to purchase that home, this is the seller of your home right here.
I want to purchase it. I want to buy your house. This is me right here. And I've had the ability wesley financial group llc reviews to save up $125,000. I have actually had the ability to save 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 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 essentially $375,000. I'm putting 25 percent down, this right, this right, this number right here, that is 25 percent of $500,000. how much can i borrow mortgages. 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 look like, uh, uh, a nice man with an excellent job who has a great credit score.
We have to have that title of the home and when you pay off the loan we're going to offer you the title of your 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.
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However the title of your home, the document that says who actually owns your home, so this is the house title, this is the title of the house, house, home title. It will not go to me. It will go to the bank, the home title will go from the seller, maybe even the seller's bank, perhaps they have not settled their mortgage, it will go to the bank that I'm https://www.globenewswire.com/news-release/2020/06/10/2046392/0/en/WESLEY-FINANCIAL-GROUP-RESPONDS-TO-DIAMOND-RESORTS-LAWSUIT.html borrowing 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 in fact it originates from old French, mort, indicates dead, dead, and the gage, indicates promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead pledge.
As soon as I pay off the loan this pledge of the title to the bank will pass away, it'll return to me (what is the current interest rate for mortgages). And that's why it's called a dead promise or a home loan. And most likely because it originates from old French is the reason we do not say mort gage. We state, mortgage.
They're truly describing the home loan, mortgage, the home loan. And what I desire to perform in the rest of this video is utilize a little screenshot from a spreadsheet I made to really show you the mathematics or in fact 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 mortgage calculator, mortgage, or actually, even better, simply go to the download, just 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 after that you'll see all of the files there and then you can just 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 presumptions that you might 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 spoken about right there. And then the, uh, loan amount, well, I have the $125,000, I'm going to have to borrow $375,000. It computes it for us and then I'm going to get a quite plain vanilla loan.
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So, thirty years, it's going to be a 30-year set rate home mortgage, repaired rate, repaired rate, which indicates the interest rate won't 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 obtained will not alter over the course of the 30 years.
Now, this little tax rate that I have here, this is to in fact determine, 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 for now. And then these other things that aren't in brown, you should not mess with these if you in fact do open up this spreadsheet yourself.
So, it's actually the annual interest rate, 5.5 percent, divided by 12 and many home loan are compounded on a month-to-month basis - what are points in mortgages. So, at the end of monthly 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 fascinating problem. But for a $500,000 loan, well, a $500,000 home, a $375,000 loan over 30 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 home I wish to present a bit of vocabulary and we have actually discussed 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 a property. 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 against that possession, that's the home loan, that's the $375,000 liability, $375,000 loan or financial obligation.
If this was all of your properties and this is all of your financial obligation and if you were essentially to sell the possessions and pay off the financial obligation. If you sell your house you 'd get the title, you can get the money and after that you pay it back to the bank.