Let's say that there is a house that I like, let's say that that is the house that I wish to buy. It has a cost of, let's state that I require to pay $500,000 to buy that house, this is the seller of your house right here.
I want to buy it. I wish to buy the house. This is me right here. And I have actually had the ability to conserve up $125,000. I have actually been able to conserve up $125,000 however I would truly like to reside in that home 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 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 sirius number to cancel have a loan for the balance? Can I have a $375,000 loan? And the bank says, sure, you look like, uh, uh, a good man with an excellent task who has an excellent credit rating.
We have to have that title of the house and as soon as you pay off the loan we're going to provide you the title of your home. 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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However the title of your home, the file that says who really owns your house, so this is the home title, this is the title of your home, 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, possibly they haven't settled 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 mortgage is. This vowing of the title for, as the, as the security for the loan, that's what a mortgage is. how do canadian mortgages work. And really it https://www.prweb.com/releases/2012/8/prweb9766140.htm originates from old French, mort, suggests dead, dead, and the gage, indicates promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead promise.
When I settle the loan this promise of the title to the bank will pass away, it'll return to me. Which's why it's called a dead pledge or a home mortgage. And probably since it originates from old French is the reason that we don't say mort gage. We state, mortgage.
They're truly referring to the mortgage, home mortgage, the home loan. And what I want to perform in the rest of this video is use a little screenshot from a spreadsheet I made to in fact reveal you the math or really show you what your home mortgage payment is going to. And you can download, you can download this spreadsheet at Khan Academy, khanacademy.org/downloads, downloads, slash mortgage calculator, home mortgage, or actually, even much 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 home loan calculator, home loan calculator, calculator dot XLSX.
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However 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. However what it does here remains in this type of dark brown color, these are the presumptions 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 house. It's a 25 percent deposit, so that's the $125,000 that I had actually saved up, that I 'd discussed right over there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to have to borrow $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 fixed rate home loan, fixed rate, fixed rate, which suggests the interest rate will not alter. We'll speak about that in a little 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 really 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 ignore it for now. And then these other things that aren't in brown, you should not tinker these if you in fact do open up this spreadsheet yourself - how do mortgages work in canada.
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So, it's actually the annual rate of interest, 5.5 percent, divided by 12 and most mortgage are intensified on a month-to-month basis. So, at the end of on a monthly basis they see just how much cash you owe and then they will charge you this much interest on that for the month.
It's really a quite intriguing issue. However 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 mortgage payment is going to be approximately $2,100. Now, right when I bought your home I wish to present a bit of vocabulary and we've discussed this in some of the other videos.
And we're assuming that it's worth $500,000. We are assuming that it deserves $500,000. That is an asset. It's a property due to the fact that it provides you future benefit, the future advantage of being able to live in it. Now, there's a liability versus that property, that's the home mortgage 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 essentially to offer the possessions and pay off the debt. how do mortgages work in the us. If you offer the house you 'd get the title, you can get the cash and then you pay it back to the bank.
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However if you were to relax this transaction 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 exactly what your original down payment was however this is your equity.
However you could not presume it's continuous and play with the spreadsheet a bit. However I, what I would, I'm introducing this since as we pay down the debt this number is going to get smaller sized. So, this number is getting smaller, let's say at some point this is just $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, really prior to I get to the chart, let me in fact show you how I determine the chart and I do this throughout 30 years and it goes by month. So, so you can picture that there's really 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.