Let's state that there is a house that I like, let's say that that is your house that I wish to purchase. It has a cost tag of, let's say that I require to pay $500,000 to purchase that home, this is the seller of the house right here.
I would like to buy it. I would like to buy your house. This is me right here. And I have actually been able to conserve up $125,000. https://www.facebook.com/ChuckMcDowellCEO/ I have actually had the ability to save up $125,000 but I would really like to live in that house 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 house, 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 says, sure, you appear like, uh, uh, a nice man with a good task who has an excellent credit ranking.
We need to have that title of the home and when you settle 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 the home, the file that states who really owns the home, 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 house title will go from the seller, perhaps even the seller's bank, possibly they haven't paid off their mortgage, it will go to the bank that I'm borrowing from.
So, this is the security right here. That is technically what a home mortgage is. This promising of the title for, as the, as the security for the loan, that's what a home loan is. how do mortgages work in monopoly. And really it comes from old French, mort, suggests dead, dead, and the gage, means pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead promise.
Once I settle 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 promise or a mortgage. And probably because it originates from old French is the reason we do not state mort gage. We say, mortgage.
They're actually referring to the mortgage, home loan, 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 mathematics 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, mortgage, or actually, even better, just go to the download, just 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 mortgage calculator, home 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 is in this sort of dark brown color, these are the presumptions that you could 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 talked about right 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 after that I'm going to get a pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate home loan, fixed rate, repaired rate, which indicates the rate of interest will not change. We'll talk 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 over the course of the thirty years.
Now, this little tax rate that I have here, this is to really figure out, what is the tax cost savings of the interest reduction on my loan? And we'll speak about that in a second, we can disregard it for now. And after that these other things that aren't in brown, you should not tinker these if you really do open this spreadsheet yourself - how do cash back mortgages work in canada.
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So, it's literally the yearly interest rate, 5.5 percent, divided by 12 and the majority of home loan are compounded on a regular monthly basis. So, at the end of monthly they see just how much money you owe and then they will charge you this much interest on that for the month.
It's really a quite interesting issue. But 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 home loan payment is going to be approximately $2,100. Now, right when I purchased your house I desire to introduce a bit of vocabulary and we have actually talked about this in some of the other videos.
And we're assuming that it deserves $500,000. We are assuming that it's worth $500,000. That is a property. It's a property since it offers you future advantage, the future advantage of being able to live in it. Now, there's a liability versus that asset, that's the home loan, 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 basically to offer the possessions and settle the debt. how do mortgages work in canada. If you sell your 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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But 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 debt and you would get in your pocket $125,000, which is precisely what your initial deposit https://local.hometownsource.com/places/view/159183/wesley_financial_group_llc.html was however this is your equity.
However you could not assume it's consistent and have fun with the spreadsheet a bit. However I, what I would, I'm introducing this due to the fact that as we pay down the debt this number is going to get smaller. So, this number is getting smaller, 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 before I get to the chart, let me actually reveal you how I determine the chart and I do this over the course of thirty years and it passes month. So, so you can envision that there's really 360 rows here on the real spreadsheet and you'll see that if you go and open it up.