Bank, can you lend me the rest of the amount I require for that home, which is basically $375,000 (what are reverse mortgages and how do they work). 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 look like, uh, uh, a great person with a great task who has a good credit ranking.
We need to have that title of your house and once you settle the loan we're going to give you the title of your home. 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 - reverse mortgages how do they work.
However the title of your house, the file that states who really owns the house, so this is the house title, this is the title of your home, house, 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, possibly they have not settled 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 home loan is. This promising of the title for, as the, as the security for the loan, that's what a mortgage is. And in fact it originates from old French, mort, suggests dead, dead, and the gage, indicates promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead pledge.
When I settle the loan this promise of the title to the bank will die, it'll come back to me. Which's why it's called a dead promise or a mortgage. And most likely since it comes from old French is the reason why we do not state mort gage. We say, home mortgage.
More About How Do House Mortgages Work
They're really referring to the home loan, mortgage, the 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 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 home mortgage calculator, home mortgage, or really, even much better, just go to the download, just go to the downloads, downloads, uh, folder on your web internet browser, you'll see a lot of files and it'll be the file called mortgage calculator, home loan calculator, calculator dot XLSX.
But just 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 want to have fun with it. how do mortgages work in monopoly. However what it does here remains in this type of dark brown color, these are the assumptions 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 deposit, so that's the $125,000 that I had actually conserved up, that I 'd talked about right over there. And then the, uh, loan quantity, 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.
So, thirty years, it's going to be a 30-year set rate mortgage, fixed rate, repaired rate, which implies the interest rate won't alter. We'll speak about that in a little bit. This 5.5 percent that I am paying on my, on the cash that I borrowed will not change over the course of the 30 years.
Now, this little tax rate that I have here, this is to actually determine, what is the tax cost savings of the interest deduction on my loan? And we'll discuss that in a 2nd, we can neglect it for now. how do reverse mortgages work example. And then these other things that aren't in brown, you shouldn't mess with these if you actually do open up this spreadsheet yourself.
Not known Facts About How Will Mortgages Work In The Future
So, it's literally the annual interest rate, 5.5 percent, divided by 12 and the majority of home mortgage loans are intensified on a month-to-month basis. So, at the end of each month they see just how much cash you owe and then they will charge you this much interest on that for the month.
It's really a pretty fascinating problem. However for a $500,000 loan, well, a $500,000 house, a $375,000 loan over thirty years at a 5.5 percent rates of interest. My mortgage payment is going to be approximately $2,100. Now, right when I purchased the house I wish to introduce a bit of vocabulary and we've discussed this in a few of the other videos.
And we're presuming that it deserves $500,000. We are assuming that it's worth $500,000. That is a possession. It's an asset since it provides you future benefit, the future benefit of being able to live in it. Now, there's a liability versus that asset, that's the mortgage, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your possessions and this is all of your financial obligation and if you were essentially to offer the assets and pay off the financial obligation. If you offer your house you 'd get the title, you can get the money and after that you pay it back to the bank.
But if you were to unwind this transaction immediately after doing it then you would have, you would have a $500,000 home, you 'd pay off your $375,000 in debt and you would get in your pocket $125,000, which is exactly what your initial deposit was however this is your equity.
Indicators on How Do Mortgages Work You Need To Know
However you might not presume it's constant and have fun with the spreadsheet a bit. However I, what I would, I'm introducing this because as we pay for the debt this number is going to get smaller sized. So, this number is getting smaller sized, let's say at some point this is only $300,000, then my equity is going to get larger.
Now, what I've done here is, well, in fact can you airbnb your timeshare before I get to the chart, let me really show you how I compute the chart and I do this throughout thirty years and it goes by month. http://augustbgix216.theglensecret.com/h1-style-clear-both-id-content-section-0-the-ultimate-guide-to-how-do-down-payments-work-on-mortgages-h1 So, so you can think of that there's really 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
So, on month no, which I do not reveal here, you borrowed $375,000. Now, throughout that month they're going to charge you 0.46 percent interest, bear in mind that was 5.5 percent divided by 12. 0.46 percent interest on $375,000 is $1,718.75. So, I haven't made any home mortgage payments yet.
So, now prior to I pay any of my payments, rather of owing $375,000 at the end of the first month I owe $376,718. Now, I'm a hero, I'm not going to default on my home loan so I make that very first home loan payment that we computed, that we calculated right over here (how do arm mortgages work).