Let's state that there is a home that I like, let's say that that is the house that I want to acquire. It has a rate tag of, let's state that I require to pay $500,000 to buy that home, this is the seller of the home right here.
I wish to buy it. I would like to purchase your home. This is me right here. And I have actually been able to save up $125,000. I have actually had the ability to save up $125,000 however I would truly like to live 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 lend me the rest of the quantity I require 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, https://www.bizjournals.com/nashville/news/2020/04/13/nbj-reveals-the-2020-best-places-to-work-honorees.html you appear like, uh, uh, a good guy with an excellent task who has a great credit rating.
We need to have that title of your house and as soon as 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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But the title of the house, the file that states who actually owns your house, so this is the house title, this is the title of your home, home, 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 haven't paid off 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 home loan is. This promising 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 in fact it comes from old French, mort, means dead, dead, and the gage, implies pledge, 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 come back to me. Which's why it's called a dead pledge or a home mortgage. And probably because it originates from old French is the reason that we don't say mort gage. We say, mortgage.
They're really referring to the mortgage, home mortgage, the home loan. And what I desire to carry out in the rest of this video is utilize a little screenshot from a spreadsheet I made to actually reveal you the math or actually reveal 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, home loan, or in fact, even better, simply 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 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 after that you can simply download this file if you desire to play with it. However what it does here is in this type of dark brown color, these are the assumptions that you might input and that you can alter these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying a $500,000 house. It's a 25 percent deposit, so that's the $125,000 that I had actually saved up, that I 'd spoken about right there. And after that 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 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 loan, fixed rate, repaired rate, which means the interest rate won't change. We'll talk about that in a bit. This 5.5 percent that I am paying on my, on the cash that I borrowed 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 reduction on my loan? And we'll discuss that in a 2nd, we can overlook it in the meantime. And then these other things that aren't in brown, you shouldn't tinker these if you really do open this spreadsheet yourself - how do reverse mortgages work example.
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So, it's actually the https://www.bloomberg.com/press-releases/2019-08-06/wesley-financial-group-provides-nearly-6-million-in-timeshare-debt-relief-in-july yearly rates of interest, 5.5 percent, divided by 12 and most mortgage are intensified on a month-to-month basis. So, at the end of monthly they see how much cash you owe and after that they will charge you this much interest on that for the month.
It's in fact a pretty interesting issue. However for a $500,000 loan, well, a $500,000 house, a $375,000 loan over 30 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 desire to introduce a little bit of vocabulary and we've discussed this in some of the other videos.
And we're presuming that it deserves $500,000. We are presuming that it's worth $500,000. That is an asset. It's a possession due to the fact that it provides you future benefit, the future advantage of being able to live in it. Now, there's a liability versus that asset, that's the mortgage loan, that's the $375,000 liability, $375,000 loan or financial obligation.
If this was all of your properties and this is all of your financial obligation and if you were basically to offer the assets and pay off the financial obligation. how do reverse mortgages work example. 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 relax this transaction instantly after doing it then you would have, you would have a $500,000 home, you 'd settle your $375,000 in financial obligation and you would get in your pocket $125,000, which is precisely what your initial deposit was however this is your equity.
But you could not assume it's continuous and have fun with the spreadsheet a little bit. But I, what I would, I'm introducing this since as we pay down the financial obligation 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 bigger.
Now, what I've done here is, well, actually prior to I get to the chart, let me in fact show you how I determine the chart and I do this throughout 30 years and it goes by month. So, so you can picture that there's actually 360 rows here on the real spreadsheet and you'll see that if you go and open it up.