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Let's say that there is a house that I like, let's say that that is your home that I would like to buy. It has a cost of, let's state that I need to pay $500,000 to buy that home, this is the seller of the home right here.

I would like to buy it. I wish to buy your house. This is me right here. And I have actually had the ability to conserve up $125,000. I've been able to conserve up $125,000 however I would actually like to reside in that home so I go to a bank, I go to a bank, get a new color for the bank, so that is the bank right there.

Bank, can you provide me the rest of the amount 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 says, sure, you appear like, uh, uh, a nice person with an excellent job who has a great credit score.

We need to have that title of the home and once you settle the loan we're going to offer you the title of your home. So what's going to take place 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 house, the file that says who actually owns your house, so this is the home title, this is the title of your home, house, home title. It will not go to me. It will go to the bank, the home title will go from the seller, possibly even the seller's bank, perhaps 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 mortgage is. This pledging of the title for, as the, as the security for the loan, that's what a mortgage is. how do reverse mortgages work after death. And actually it originates from old French, mort, implies dead, dead, and the gage, means pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.

Once I pay off the loan this pledge 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 that we do not say mort gage. We state, mortgage.

They're really referring to the mortgage, mortgage, the mortgage. And what I wish to do in the rest of this video is use a little screenshot from a spreadsheet I made to really reveal you the mathematics or actually reveal 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 loan calculator, mortgage, or in fact, even much better, simply 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 home loan calculator, mortgage calculator, calculator dot XLSX.

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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 desire to play with it. But what it does here remains 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 whole spreadsheet.

I'm buying a $500,000 house. It's a 25 percent deposit, so that's the $125,000 that I had saved up, that I 'd talked about cancel financial times right over there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to need to borrow $375,000. It determines it for us and after that I'm going to get a pretty plain vanilla loan.

So, 30 years, it's going to be a 30-year fixed rate home loan, repaired rate, repaired rate, which implies the rates of interest will not alter. We'll discuss that in a little 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 really find out, what is the tax savings of the interest reduction on my loan? And we'll discuss that in a second, we can ignore it for now. And after that these other things that aren't in brown, you shouldn't mess with these if you actually do open up this spreadsheet yourself - how do mortgages work.

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So, it's actually the yearly rate of interest, 5.5 percent, divided by 12 and the majority of mortgage are intensified on a monthly basis. So, at the end of every 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 really a quite intriguing issue. However 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 mortgage payment is going to be approximately $2,100. Now, right when I bought your house I desire to introduce a bit of vocabulary and we've talked about this in some of the other videos.

And we're presuming that it deserves $500,000. We are assuming that it deserves $500,000. That is an asset. It's an asset because it provides you future advantage, the future benefit of having the ability to reside in it. Now, there's a liability versus that possession, 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 properties and pay off the financial obligation. how do business mortgages work. If you sell your house you 'd get the title, you can get the cash and after that you pay it back to the bank.

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However if you were to relax this transaction instantly after doing it then you would have, you would have a $500,000 house, you 'd pay off https://local.hometownsource.com/places/view/159183/wesley_financial_group_llc.html 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.

However you might not presume it's constant and have fun with the spreadsheet a bit. But I, what I would, I'm introducing this because as we pay for the financial obligation this number is going to get smaller sized. So, this number is getting smaller, let's say at some point this is just $300,000, then my equity is going to get bigger.

Now, what I've done here is, well, really before I get to the chart, let me in fact show you how I compute the chart and I do this over the course of thirty years and it passes month. So, so you can imagine that there's actually 360 rows here on the real spreadsheet and you'll see that if you go and open it up.