Bank, can you provide me the rest of the quantity I require for that house, which is basically $375,000 (how do mortgages work in monopoly). 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 nice man with a good task who has an excellent credit score.
We need to have that title of the home 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 occur here is we're going to have the loan is going to go to me, so it's $375,000, $375,000 loan - how do down payments work on mortgages.
But the title of your house, the document that states who actually owns your home, so this is the home title, this is the title of your house, house, house 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, maybe 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 mortgage is. This vowing of the title for, as the, as the security for the loan, that's what a home mortgage is. And actually it comes from old French, mort, suggests dead, dead, and the gage, suggests promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead promise.
Once I pay off the loan this pledge of the title to the bank will die, it'll return 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 we don't state mort gage. We state, mortgage.
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They're really describing the home loan, mortgage, the home mortgage loan. And what I desire to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to in fact show you the math or actually 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, mortgage, or really, even much 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, 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 desire to have fun with it. explain how mortgages work. However what it does here is in this kind 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 purchasing a $500,000 house. It's a 25 percent down payment, so that's the $125,000 that I had actually saved up, that I 'd discussed right there. And after that 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 quite plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate home loan, repaired rate, repaired rate, which means 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 money that I obtained will not change throughout 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 speak about that in a 2nd, we can overlook it for now. how do canadian mortgages work. And then these other things that aren't in brown, you shouldn't mess with these if you in fact do open this spreadsheet yourself.
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So, it's actually the annual rate of interest, 5.5 percent, divided by 12 and the majority of mortgage are compounded on a month-to-month 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 in fact a quite interesting problem. However 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 home mortgage payment is going to be roughly $2,100. Now, right when I bought your house I wish to present a bit of vocabulary and we've talked about this in a few of the other videos.
And we're presuming that it's worth $500,000. We are presuming that it's worth $500,000. That is an asset. It's a possession because it provides you future advantage, the future benefit of having the ability to live in it. Now, there's a liability against that possession, that's the mortgage, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your properties and this is all of your debt and if you were essentially to offer the assets and settle the financial obligation. 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.
However if you were to relax this transaction immediately after doing it then you would have, you would have a $500,000 home, you 'd pay off your $375,000 how do i cancel my wfg in debt and you would get in your pocket $125,000, which is precisely what your original down payment was however this is your equity.
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However you could not assume it's consistent and have fun with the spreadsheet a little bit. But I, what I would, I'm introducing this because 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 Go here my equity is going to get larger.
Now, what I've done here is, well, in fact prior to I get to the chart, let me actually show you how I determine the chart and I do this throughout 30 years and it goes by month. So, so you can think of that there's in fact 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
So, on month absolutely no, which I don't show 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 first home loan payment that we calculated, that we computed right over here (how do points work in mortgages).