Let's state that there is a home that I like, let's say that that is the home that I want to purchase. It has a price of, let's state that I require to pay $500,000 to buy that house, this is the seller of your home right here.
I wish to purchase it. I wish to purchase the house. This is me right here. And I have actually been able to save up $125,000. I've had the ability to conserve up $125,000 but I would actually 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 provide me the remainder of the quantity I need for that home, which is basically $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 great task who has a great credit score.
We have to have that title of your home and as soon as you pay off the loan we're going to provide you the title of the home. 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 says who in fact owns your house, so this is the house title, this is the title of the home, home, home 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 mortgage is. how do variable mortgages work in canada. And actually it originates from old French, mort, suggests dead, dead, and the gage, indicates pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead pledge.
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 most likely due to the fact that it comes from old French is the factor why we do not say mort gage. We state, home mortgage.
They're actually referring to the mortgage, mortgage, the mortgage. And what I wish to carry out in the rest of this video is use a little screenshot from a spreadsheet I made to actually show you the math or in fact 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 home mortgage calculator, mortgage, or in fact, even much 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 mortgage calculator, mortgage calculator, calculator dot XLSX.
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But simply 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 wish to play with it. But what it does here remains 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 home. It's a 25 percent down payment, so that's the $125,000 that I had actually conserved up, that I 'd talked about right over there. And after that the, uh, loan amount, well, I have the $125,000, I'm https://www.businesswire.com/news/home/20190911005618/en/Wesley-Financial-Group-Continues-Record-Breaking-Pace-Timeshare going to need to obtain $375,000. It computes it for us and then I'm going to get a pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate mortgage, fixed rate, fixed rate, which means the rates of interest won't change. We'll discuss that in a little bit. This 5.5 percent that I am paying on my, on the money that I borrowed will not change throughout the 30 years.
Now, this little tax rate that I have here, this is to in fact figure out, what is the tax savings of the interest deduction on my loan? And we'll talk about that in a second, we can overlook it for now. 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 - how do second mortgages work in ontario.
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So, it's actually the yearly interest rate, 5.5 percent, divided by 12 and many mortgage are compounded on a month-to-month basis. So, at the end of monthly they see how much money you owe and then they will charge you this much interest on that for the month.
It's actually a quite intriguing issue. But for a $500,000 loan, well, a $500,000 home, a $375,000 loan over 30 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 wish to present a bit of vocabulary and we've spoken about this in some of the other videos.
And we're assuming that it deserves $500,000. We are presuming that it's worth $500,000. That is a property. It's an asset because it offers you future advantage, the future advantage of being able to reside in it. Now, there's a liability versus that property, that's the home 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 debt and if you were basically to offer the properties and settle the financial obligation. how do reverse mortgages work after death. If you sell your house 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 immediately 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 down payment was but this is your equity.
But you could not presume it's continuous and play 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. So, this number is getting smaller sized, let's state at some point this is just $300,000, then my equity is going to get larger.
Now, what I have actually done here is, well, actually prior to I get to the chart, let me in fact reveal you how I determine the chart and I https://www.businesswire.com/news/home/20190723005692/en/Wesley-Financial-Group-Sees-Increase-Timeshare-Cancellation do this over the course of 30 years and it passes month. So, so you can think of that there's really 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.
