Bank, can you lend me the rest of the amount I require for that house, which is essentially $375,000 (how do mortgages https://blogfreely.net/godiedeysf/if-the-lender-takes-your-house-in-a-foreclosure-youand-39-ll-likewise-lose-any work in canada). 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 great man with a good job who has a great credit ranking.
We have to have that title of the home and when you pay off the loan we're going to provide you the title of your 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 - how do second mortgages work in ontario.
But the title of your house, the file that says who in fact owns the house, so this is the house title, this is the title of your house, house, 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, perhaps 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 really it originates from old French, mort, implies dead, dead, and the gage, suggests pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead pledge.
As soon as 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 pledge or a mortgage. And probably because it originates from old French is the reason that we do not say mort gage. We state, home loan.
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They're actually referring to the mortgage, home mortgage, the home mortgage loan. And what I wish to perform in the rest of this video is utilize a little screenshot from a spreadsheet I made to really reveal you the mathematics 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, home mortgage, or in fact, even better, just go to the download, just go to the downloads, downloads, uh, folder on your web internet browser, you'll see a lot of files and it'll be the file called home loan calculator, home mortgage calculator, calculator dot XLSX.
But simply go to this URL and then you'll see all of the files there and then you can simply download this file if you wish to play with it. what are reverse mortgages and how do they work. However what it does here is in this kind of dark brown color, these are the assumptions that you might input and that you can change 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 talked about right there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to have to obtain $375,000. It determines it for us and after that I'm going to get a pretty plain vanilla loan.
So, thirty years, it's going to be a 30-year set rate mortgage, repaired rate, fixed rate, which suggests the rate of interest will not change. We'll talk about that in a bit. This 5.5 percent that I am paying on my, on the money that I borrowed will not alter 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 reduction on my loan? And we'll talk about that in a 2nd, we can overlook it for now. how do cash back mortgages work in canada. And then these other things that aren't in brown, you should not tinker these if you in fact do open this spreadsheet yourself.
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So, it's actually the yearly rate of interest, 5.5 percent, divided by 12 and the majority of mortgage are intensified on a monthly basis. So, at the end of each month they see just how much money you owe and then they will charge you this much interest on that for the month.
It's actually a quite fascinating problem. However for a $500,000 loan, well, a $500,000 home, a $375,000 loan over thirty years at a 5.5 percent interest rate. My home loan payment is going to be roughly $2,100. Now, right when I purchased your house I want to present a little bit of vocabulary and we've spoken about this in some of the other videos.
And we're presuming that it's worth $500,000. We timeshare cancellation industry are assuming that it deserves $500,000. That is an asset. It's a possession due to the fact that it gives you future benefit, the future benefit of having the ability to live in it. Now, there's a liability versus that possession, that's the mortgage loan, that's the $375,000 liability, $375,000 loan or financial obligation.
If this was all of your assets and this is all of your financial obligation and if you were basically to sell the possessions and settle the debt. If you offer the house you 'd get the title, you can get the cash and after that you pay it back to the bank.
However 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 debt and you would get in your pocket $125,000, which is precisely what your initial down payment was however this is your equity.
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However you might 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. So, this number is getting smaller sized, let's state eventually this is just $300,000, then my equity is going to get bigger.
Now, what I've done here is, well, in fact before I get to the chart, let me actually reveal you how I compute the chart and I do this over the course of 30 years and it passes 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 no, which I do not reveal 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 home loan 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 hero, I'm not going to default on my home loan so I make that first mortgage payment that we computed, that we calculated right over here (how do 2nd mortgages work).