Introduction to Mortgage Loans | Housing | Finance & Capital Markets | Khan Academy

What I wanted to do in this video is to explain what a mortgage is. I think most of us have at least a little understanding of this, but to understand more than that, he learned the numbers and what we actually do by paying the mortgage, what it consists of and that how much interest on the loan Let's understand at least a little. Let's start with a small example. Let's say I have a house as I want.

Suppose this is a house is the house I want to buy. And the price of the house, let's say I have to pay $ 500,000 to buy this house. He is the seller of this house here. And he has a mustache. This is the seller of the house. I'd like to buy this. I want to buy a house. Here I am. And I was able to raise $ 125,000. I was able to raise $ 125,000, but this house is really, I want to live, so I turn to the bank. I'm going to the bank, let's paint the bank nicely. This is the bank here. And I say, "Mr. Bank, tell me about this house can you lend me the rest of the money? " Which is $ 375,000. I get 25% discount. This figure is here, that's 25% of $ 500,000. And I ask the bank, “Can I get a loan to complete? Can I get a $ 375,000 loan? " And the bank says, "Of course. You have good credit ratings you look like a normal person working in a good job.

I will give you a loan, but a loan you will not be able to acquire property rights without payment. "We have to own the property and once you repay the loan, we will give you the right of ownership. " What happened here is that the loan came to me. that's $ 375,000. $ 375,000 credit. Then I can go and buy a house. In the end I will give $ 500,000, $ 500,000 to the seller of the house and in fact I will move home myself, Suppose I use it as my home. But the property right, in fact, the document of the house means you own the house.

This is an extract (civil document of the house). This is an extract of the house. Document confirming the right of ownership It will not come to me. Will go to the bank. The extract will pass through the seller, or even from the seller's bank, because maybe they didn't pay the mortgage. I will go to the bank to get a loan. Transfer of the right to secure this loan. "Securing the loan" means the lender I have not repaid the loan or I have disappeared I mean, I have to give something.

This is security here. This is technically a mortgage. Mortgaging a house extract as collateral for a loan is a mortgage. mortgage, this is a mortgage. It actually comes from the former French. "Mort" means dead, "Gage" means hostage. I'm 100% sure I'm mispronouncing, but it comes from a dead mortgage, but it comes from a dead mortgage, because now I pledge it, but he will die after repaying the mortgage. Collateral given to the bank after repaying the loan he will die and he will be returned to me. Therefore, it is called a dead collateral or mortgage. And probably because it comes from Old French We call it a mortgage, not a mortgage. Fortunately, this is a bit technical, but normally when people turn to mortgages, indeed, they turn to credit. Indeed, they focus on mortgage lending. I wanted to do the rest of this video you pay the math and actually the mortgage I took it from the table how it will be is to show using the screenshot.

You can upload this spreadsheet to khanacademy, khanacademy.org/downloads/mortgagecalculator Or, a better way is by going to the download file You will see several files in your web browser, and this file will be called MortgageCalculator, MortgageCalculator.xlsx. This is the 2007 Microsoft format. Just go to this URL and you will see the files there and if you want to deal with this file, you can download. What's here, in a dark brown place like this There are probabilities, which can make an entry and then the whole table in your cell table you can change it without breaking. I guess this is a 5.5% interest rate. I'm buying a house for $ 500,000. This is a 25% lower price. That's $ 125,000 I can save. which I talked about a while ago.

And the amount of credit. So I have 125, I will have to borrow 375, calculates it for us. And then I'll take a nice flat vanilla loan. This will last for 30 years. When I say years, I mean how long the loan will last. So 30 years. It will be a 30-year fixed interest mortgage. This means that a fixed interest rate will not change. We will talk about this a bit. This 5.5% I paid for the money I borrowed It will not change for 30 years. Debt when you repay part of the loan we will see my amount change. The small tax rate here, actually a discount on my loan is to understand what tax collection is. In this second we will talk about it, you can pass it now.

Other non-browns, If you have not opened the schedule yourself, you should not interfere. They are calculated automatically with it. Here is the monthly interest rate. This is the same as the annual interest rate, 5.5%, Divided by 12. And many mortgages are complicated on a monthly basis, so at the end of each month how much money you have see and so much for you this month will indicate that there is interest. Based on all the assumptions now made, that there's a little behind-the-scenes math the actual mortgage payment in the next video I can show you how. This is actually a nice and interesting question. But for a $ 500,000 loan– for a $ 500,000 home, $ 375,000 loan at 5.5% for 30 years, The mortgage payment will be about $ 2100. When I bought the house, I want to present a little dictionary, and we talked about it in some other videos. There is an asset in this question, home. And we assume it's worth $ 500,000. Assume it is worth $ 500,000. This is active. Because it is active, it gives us future benefits; The future benefit is to be a place where we can live. Now, there is a liability against the asset, this is a mortgage loan.

That's a $ 375,000 commitment. $ 375,000 loan or debt. If this is your balance sheet, if this is all your assets and all your debts, and you sold the assets you have to pay your debts. If you sell the house, you will get the right of ownership, you will receive the money and then pay it back to the bank. So, in fact, this is not the case, but I will not be technical. But immediately after this operation if you solved, you would have a house worth $ 500,000. you would pay off your $ 375,000 debt, and $ 125,000 would be in your pocket. which is your original down payment. But this is your capital. The reason I say this now is that In this video, the price of a house goes up and down I will not assume anything about, assume that is constant.

But you can't assume it's stable, and deal a little with the schedule. But I introduce it, because when paying the debt the figure will begin to shrink. Thus, the figure will be reduced. Let's say it's just 300,000 at this point. My capital will start to grow. so how much after paying off your home debt you can count the capital you earn. If you sell the house and pay the debt, the rest is up to you. This is your real presence in the house, what you have. What you have in your home or what the entrepreneur really owns. What I did here — In fact, before you move on to the schedule, show me how to calculate the graph. I have been doing this for 30 years, months. So here, 360 rows in the table you might think that and if you go and see it open. But I just want to show you what I did.

0 per month, which I don't show here, you owe $ 375,000. Now, during that month you will be called 0.46%. Remember, this is 12 divided by 5.5%. 0.46% of $ 375,000 is $ 1,718.5. So, I have not repaid my mortgage yet. I owe $ 375,000. This percentage is based on this, calculated. So before I make any of my payments, instead of a $ 375,000 debt at the end of the first month, I owe $ 376,718. Now I am a good person, I will not be late in repaying my mortgage, So I make my first mortgage payment, which we have now calculated. After making my payment, in my essence How much credit do I have left? This was before I made the payment, therefore, you receive payment from him. This is my post-payment credit balance. Now right here, a little star, this is my capital. So let's remember, I started with $ 125,000 in capital.

After paying off my loan balance, after my first payment, I have $ 125,410 left in my capital. So, my capital is exactly $ 410. Now you're probably saying, "Gee. I paid $ 2,000, payment of about $ 2,000, and my capital just went up by $ 410, Shouldn't this debt have been reduced by $ 2,000? My capital has risen to $ 2,000. " And the answer is "no" because, you had to pay all the interest. Therefore, first of all, your payment, your $ 2,000 payment is mostly interest. Only $ 410 is commission-free. Therefore, as your credit balance decreases you will start paying less interest, so that each of your payments is free of charge to be relatively superior and interest will begin to decline relatively.

And then to understand the next line, this percentage increases here, Your loan balance, except for the last month I hit 0.46%. You have received a new interest rate increase. This is your new prepaid balance. I am repaying my mortgage. This is my new loan balance. And we see that for 2 months now $ 2 has gone for more commission-free money. And $ 2 less than interest. And in 360 months you will see that this is a really big difference, and this is what the graph wants to show us. This is the interest on our mortgage payment and are parts of money without commission. So this height left behind — Let's slide down a bit. This is 1 month. Therefore, the whole height, as we have seen, this is exactly our mortgage payment, $ 2,129. Now, you see, I paid $ 2,100 in that first month, it's only $ 400, that's $ 400. Only $ 400 of that is basic, actually went to repay the loan amount. The rest was spent on interest, percent of this month. Most were spent for a percentage of the month. But when you start repaying the loan, credit balance will begin to decline.

there will be less interest to pay on each of my payments. Let's make it more stylish. There is less interest here. Let's go here, 198th month, This is lower than the interest rate in the last month, so Most of the $ 2,100 until we go to the 360th month will go to repay the loan. You can see it in the table. The last payment in full in the 360th month will be spent without commission. There may be very little interest. And now, one last thing about this video I want to talk, without much delay, that is, a tax rebate.

Financial planners and in many cases The benefits of buying your home from realtors are tax benefits and so on. you will hear words like. Your interest is a deductible tax. Your interest does not mean everything is paid. Your interest is a withholding tax. I want to explain more clearly the meaning of the word "out". First of all, let's talk about what interest means. $ 2,100 per month for all 30 years or $ 2,129. At first, much of it was interest. In the first month, $ 1,700 of that was interest. This is a tax of $ 1,700. Going further, without paying the mortgage for each month increasingly less tax is levied.

The tax levied here is really less. and increasingly to pay off all my mortgages and I'm getting ready to be a host. In the sense of what is taxation I want to be very clear, because in my opinion, this is often misunderstood. Let's say I paid in 1 year, I don't know exactly, I will make up a figure of myself. I did not calculate it in the table. Let's say I pay $ 10,000 in interest in the first year. $ 10,000 interest. Remember that my actual payments will be higher than this, because some of my payments are actually went to repay my loan.

But let's say 10,000 percent is gone. And before that, let's say Before that, let's say I earn 100,000, credit aside, Let's say I earn $ 100,000 a year, and let's say I pay about 35% of that 100,000. The whole tax system, different sections and I will not go into all of this. Let's say that if it weren't for my mortgage, I would pay 35% tax, which would be a tax of about $ 35,000 a year.

This is just an approximate estimate. When you say $ 10,000 is a withheld tax, interest is withheld tax, that doesn't mean I'm normally in debt I'll take $ 35,000 and just pay $ 25,000. This means that I can deduct this amount from my income. When I told the IRS how much I had earned this year, I say I earned $ 90,000 instead of $ 100,000, because I can get out of it, not one of my taxes, I can deduct this from my income. So if I only made $ 90,000, — and it's about how taxes are paid I'm making rough adjustments – and I pay 35% of it, let's take out the calculator, Let's use a calculator. So 90 times 0.35 is equal to 31,500. So that's going to be $ 31,500. $ 31,500. 10,000 deductions, $ 10,000 interest deducted, I'm saving $ 3,500. No $ 10,000 dollars. Another way to understand this is, If I pay 10,000 percent and the tax rate is 35%, I will save 35% of this, which is my real tax. This is what people mean by taxes. You told the IRS you get out of your income. You can take it directly from your taxes If there is one thing, it is called a tax credit.

Special that you can deduct directly from your taxes If anything, this is a tax credit. But the tax is deducted only from your income. I want to show in this table that I actually calculated this month that how much is your withholding tax. For example, you pay a $ 2,100 mortgage in the first month Did you pay $ 1,700 in interest, that is, 35% of it. And according to your assumptions, I won 35%, 35% of $ 1,700, I will save $ 600 this month.

So about 1 year in taxes I will save $ 7,000, so there was nothing that needed serious attention. Anyway, I hope you found it useful, and I encourage you to join this table, and if you don't understand much about the schedule, deal with the assumptions that only with brown ones. and you have different interest rates on it loan amounts, different payments, terms you will see how it changes based on. Different tax rate, indeed, it will change tax savings, and mortgage loans identified in this table you can deal with..

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