Bank, can you lend me the remainder of the amount I need for that home, which is basically $375,000 (how do canadian mortgages work). 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 man with an excellent job who has an excellent credit score.
We have to have that title of your house and as soon as you pay off the loan we're going to give you the title of your house. 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 - how do buy to rent mortgages work.
However the title of your home, the document that says who actually owns your home, so this is the house title, this is the title of your home, home, home title. It will not go to me. It will go to the bank, the home title will go from the seller, maybe even the seller's bank, possibly they have not 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 mortgage is. This pledging 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, implies dead, dead, and the gage, implies promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead promise.
Once I pay off the loan this promise of the title to the bank will pass away, it'll return to me. And that's why it's called a dead promise or a home mortgage. And most likely since it comes from old French is the reason why we don't state mort gage. We state, home loan.
Getting My How Do Mortgages Finance Work To Work
They're truly describing the home loan, home mortgage, the home loan. And what I wish to do in the rest of this video is use a little screenshot from a spreadsheet I made to actually reveal you the math or actually show 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 better, simply go to the download, simply go to the downloads, downloads, uh, folder on your web browser, you'll see a bunch of files and it'll be the file called home mortgage calculator, mortgage calculator, calculator dot XLSX.
However just go to this URL and then you'll see all of the files there and after that you can just download this file if you wish to have fun with it. how do variable mortgages work in canada. But what it does here remains in this sort of dark brown color, these are the assumptions that you might input which you can alter these cells in your spreadsheet without breaking the entire spreadsheet.
I'm purchasing 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 discussed right over there. And then 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 pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year set rate mortgage, fixed rate, fixed rate, which means the interest rate won't alter. We'll speak about 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 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 lauren jenifer gates that in a second, we can disregard it in the meantime. how do home mortgages work. And after that these other things that aren't in brown, you should not tinker these if you in fact do open up this spreadsheet yourself.
Get This Report about How Mortgages Payments Work
So, it's literally the annual rates of interest, 5.5 percent, divided by 12 and the majority of home loan loans are compounded on a month-to-month basis. So, at the end of monthly they see just how much cash you owe and after that they will charge you this https://www.evernote.com/shard/s414/sh/62269f02-15ef-215f-0080-4460df663380/0d9b849315cc130152f7c3182aee9460 much interest on that for the month.
It's really a pretty 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 rates of interest. My home mortgage payment is going to be roughly $2,100. Now, right when I purchased your house I want to introduce a bit of vocabulary and we have actually discussed this in some of the other videos.
And we're presuming that it's worth $500,000. We are presuming that it deserves $500,000. That is a property. It's a property due to the fact that it provides you future advantage, the future advantage of being able to reside in it. Now, there's a liability against that property, that's the mortgage, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your assets and this is all of your debt and if you were basically to sell the assets and pay off the financial obligation. If you offer your house you 'd get the title, you can get the cash and after that you pay it back to the bank.
But if you were to relax this transaction instantly 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 deposit was however this is your equity.
Mortgages How Do They Work - Truths
However you could not assume it's continuous and play with the spreadsheet a little bit. However 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 eventually 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 actually show you how I calculate the chart and I do this over the course of 30 years and it goes by month. So, so you can think of that there's actually 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
So, on month zero, which I do not show here, you obtained $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 have not made any mortgage payments yet.
So, now prior to I pay any of my payments, instead of owing $375,000 at the end of the first month I owe $376,718. Now, I'm a great person, I'm not going to default on my home loan so I make that first home mortgage payment that we determined, that we calculated right over here (how do reverse mortgages work?).