Let's say that there is a home that I like, let's say that that is your home that I would like to purchase. It has a price of, let's state that I need to pay $500,000 to purchase that house, this is the seller of the home right here.
I want to buy it. I want to purchase your house. This is me right here. And I have actually been able to conserve up $125,000. I've been able to conserve up $125,000 however 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 rest 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 appear like, uh, uh, a nice man with a good job who has a great credit ranking.
We have to have that title of your home and as soon as you pay off the loan we're going to offer 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.
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But the title of your home, the document that states who in fact owns the house, so this is the home title, this is the title of your house, home, home 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, perhaps they haven't paid off their 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 buy to rent mortgages work. And in fact it comes from old French, mort, indicates dead, dead, and the gage, means promise, 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 pledge of the title to the bank will die, it'll come back to me. And that's why it's called a dead pledge or a home mortgage. And probably because it comes from old French is the reason https://www.businesswire.com/news/home/20190723005692/en/Wesley-Financial-Group-Sees-Increase-Timeshare-Cancellation we do not state mort gage. We say, mortgage.
They're really referring to the mortgage, home loan, the mortgage. And what I wish to perform 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 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 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 bunch of files and it'll be the file called home loan calculator, home loan 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 then you can simply download this file if you want to play with it. But what it does here remains in this kind of dark brown color, these are the presumptions that you might input which you can change these cells in your spreadsheet without breaking the entire spreadsheet.
I'm purchasing 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 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 pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate home mortgage, fixed rate, repaired rate, which indicates the rates of interest will not change. We'll discuss that in a bit. This 5.5 percent that I am paying on my, on the cash that I obtained will not change throughout the thirty years.
Now, this little tax rate that I have here, this is to in fact find out, what is the tax cost savings of the interest deduction on my loan? And we'll speak about that in a 2nd, we can neglect it for now. And after that these other things that aren't in brown, you should not mess with these if you actually do open up this spreadsheet yourself - how do buy to let mortgages work uk.
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So, it's literally the annual rate of interest, 5.5 percent, divided by 12 and most home loan are compounded on a regular monthly basis. So, at the end of on a monthly basis they see just how much cash you owe and then they will https://www.businesswire.com/news/home/20190911005618/en/Wesley-Financial-Group-Continues-Record-Breaking-Pace-Timeshare charge you this much interest on that for the month.
It's in fact a pretty interesting problem. 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 home loan payment is going to be approximately $2,100. Now, right when I purchased your house I wish to introduce a bit of vocabulary and we've talked about this in a few of the other videos.
And we're assuming that it's worth $500,000. We are presuming that it's worth $500,000. That is a property. It's a possession due to the fact that it gives you future benefit, 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 possessions and this is all of your financial obligation and if you were basically to sell the assets and settle the debt. how do reverse mortgages work in california. If you sell the home 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 deal right away after doing it then you would have, you would have a $500,000 home, you 'd pay off your $375,000 in financial obligation and you would get in your pocket $125,000, which is precisely what your original deposit was but this is your equity.
However you might not presume it's continuous and play with the spreadsheet a little bit. But I, what I would, I'm presenting this because as we pay down the financial obligation this number is going to get smaller sized. So, this number is getting smaller, let's say eventually this is only $300,000, then my equity is going to get larger.
Now, what I've done here is, well, actually prior to I get to the chart, let me actually show you how I calculate 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 actual spreadsheet and you'll see that if you go and open it up.