Let's say that there is a home that I like, let's state that that is your home that I want to buy. It has a cost tag of, let's say that I require to pay $500,000 to buy that home, this is the seller of the home right here.
I wish to purchase it. I wish to buy your house. This is me right here. And I have actually had the ability to save up $125,000. I've had the ability to conserve up $125,000 but I would actually 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 need 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. So, I ask the bank, can I have a loan for the balance? Can I have a $375,000 loan? And the bank states, sure, you appear like, uh, uh, a good man with a great job who has a good credit score.
We need to have that title of your house and when you pay off the loan we're going to offer you the title of your house. 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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But the title of your home, the document that says who in fact 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 house title will go from the seller, perhaps even the seller's bank, maybe they haven't 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 home loan is. how do escrow accounts work for mortgages. And in fact it comes 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.
When I settle the loan this promise of the title to the bank will pass away, it'll come back to me. And that's why it's called a dead pledge or a home loan. And most likely due to the fact that it comes from old French is the reason that we don't say mort gage. We say, mortgage.
They're actually describing the home mortgage, mortgage, the home loan. And what I wish to perform in the rest of this video is utilize a little screenshot from a spreadsheet I made to in fact show you the mathematics or actually show 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 mortgage calculator, mortgage, or in fact, even https://www.globenewswire.com/news-release/2020/03/12/1999688/0/en/WESLEY-FINANCIAL-GROUP-SETS-COMPANY-RECORD-FOR-TIMESHARE-CANCELATIONS-IN-FEBRUARY.html better, just go to the download, simply 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 mortgage calculator, mortgage calculator, calculator dot XLSX.
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But just go to this URL and after that you'll see all of the files there and then you can simply download this file if you desire to have fun with it. But what it does here remains in this kind 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 deposit, so that's the $125,000 that I had actually conserved up, that I 'd discussed https://www.timeshareexitcompanies.com/wesley-financial-group-reviews/ right over there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to have to borrow $375,000. It determines it for us and after that I'm going to get a quite plain vanilla loan.
So, thirty years, it's going to be a 30-year set rate home mortgage, fixed rate, fixed rate, which suggests the rates of interest won't change. We'll speak about that in a bit. This 5.5 percent that I am paying on my, on the cash 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 deduction on my loan? And we'll talk about that in a 2nd, we can ignore it for now. And then these other things that aren't in brown, you should not tinker these if you really do open up this spreadsheet yourself - how do second mortgages work in ontario.
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So, it's actually the annual rates of interest, 5.5 percent, divided by 12 and the majority of home loan are intensified on a month-to-month basis. So, at the end of every month they see just how much money you owe and after that they will charge you this much interest on that for the month.
It's really a quite intriguing issue. However for a $500,000 loan, well, a $500,000 home, a $375,000 loan over thirty years at a 5.5 percent interest rate. My mortgage payment is going to be approximately $2,100. Now, right when I bought your house I desire to present a bit of vocabulary and we have actually spoken about this in a few of the other videos.
And we're presuming that it deserves $500,000. We are presuming that it's worth $500,000. That is a possession. It's a possession due to the fact that it provides you future advantage, the future benefit of having the ability to reside in it. Now, there's a liability against that asset, that's the mortgage loan, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your possessions and this is all of your debt and if you were basically to offer the properties and settle the financial obligation. how do commercial mortgages work. If you sell your home you 'd get the title, you can get the money and then you pay it back to the bank.
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However if you were to unwind this deal instantly after doing it then you would have, you would have a $500,000 home, you 'd pay off your $375,000 in financial obligation and you would get in your pocket $125,000, which is exactly what your initial down payment was however this is your equity.
But you might not presume it's continuous and play with the spreadsheet a little bit. But I, what I would, I'm presenting this due to the fact that as we pay down the financial obligation this number is going to get smaller. So, this number is getting smaller sized, let's state eventually this is just $300,000, then my equity is going to get larger.
Now, what I have actually done here is, well, actually before I get to the chart, let me in fact reveal you how I calculate the chart and I do this throughout thirty years and it goes by month. So, so you can imagine that there's actually 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.