Let's state that there is a home that I like, let's state that that is your home that I would like to purchase. It has a cost 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 wish to purchase it. I wish to buy the home. This is me right here. And I've had the ability to conserve up $125,000. I've been able to save up $125,000 however I would really like to live 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 remainder 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 look like, uh, uh, a great man with a good job who has an excellent credit rating.
We have to have that title of the house and as soon as you pay off 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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But the title of your home, the file that states who in fact 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 house title will go from the seller, perhaps even the seller's bank, perhaps https://www.inhersight.com/companies/best/reviews/salary?_n=112289587 they haven't settled their home loan, it will go to the bank that I'm borrowing 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. how does chapter 13 work with mortgages. And really it comes from old French, mort, means dead, dead, and the gage, suggests promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead promise.
Once I pay off the loan this promise of the title to the bank will pass away, it'll come back to me. Which's why it's called a dead pledge or a home mortgage. And probably since it comes from old French is the reason that we don't say mort gage. We say, mortgage.
They're really describing the mortgage, home loan, the mortgage. And what I desire to do in the rest of this video is use a little screenshot from a spreadsheet https://www.globenewswire.com/news-release/2020/04/23/2021107/0/en/WESLEY-FINANCIAL-GROUP-REAP-AWARDS-FOR-WORKPLACE-EXCELLENCE.html I made to really show 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 mortgage calculator, home loan, or actually, even better, just go to the download, just 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 loan calculator, mortgage calculator, calculator dot XLSX.
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However 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. However what it does here is in this sort of dark brown color, these are the assumptions that you could input and that you can alter 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 discussed right there. And then the, uh, loan amount, well, I have the $125,000, I'm going to need to obtain $375,000. It computes it for us and then I'm going to get a quite plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate mortgage, repaired rate, fixed rate, which indicates the rates of interest will not change. We'll talk about that in a bit. This 5.5 percent that I am paying on my, on the cash that I obtained 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 cost savings of the interest reduction on my loan? And we'll talk about that in a 2nd, we can ignore it in the meantime. And then these other things that aren't in brown, you shouldn't mess with these if you actually do open this spreadsheet yourself - how do mortgages work in the us.
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So, it's literally the annual rate of interest, 5.5 percent, divided by 12 and a lot of mortgage are intensified on a monthly basis. So, at the end of every month they see how much cash you owe and after that they will charge you this much interest on that for the month.
It's really a quite interesting issue. But for a $500,000 loan, well, a $500,000 home, a $375,000 loan over thirty years at a 5.5 percent rate of interest. My mortgage payment is going to be roughly $2,100. Now, right when I bought your home I want to present a bit of vocabulary and we've spoken about 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 an asset. It's a property because it provides you future advantage, the future advantage of having the ability to reside in it. Now, there's a liability against that asset, that's the home loan, that's the $375,000 liability, $375,000 loan or financial obligation.
If this was all of your assets and this is all of your financial obligation and if you were essentially to sell the properties and settle the debt. how do home mortgages work. If you sell your home you 'd get the title, you can get the cash and then you pay it back to the bank.
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But if you were to unwind this deal instantly after doing it then you would have, you would have a $500,000 house, you 'd settle your $375,000 in financial obligation and you would get in your pocket $125,000, which is exactly what your original deposit was however this is your equity.
But you could not presume it's constant and play with the spreadsheet a little bit. But 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 just $300,000, then my equity is going to get larger.
Now, what I've done here is, well, really prior to I get to the chart, let me really reveal you how I compute the chart and I do this over the course of thirty years and it goes by month. So, so you can imagine that there's really 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
