Alright, so if this is your first time looking into real estate and if you
don't know what a mortgage is, stick around, we're gonna talk all about it.
Hey, friends. Stephen Michael Miller here and we got a question from Joey and he was
asking how does a mortgage work? Well let's just jump right into it. First of
all, in order to understand how a mortgage works, you need to know what a
mortgage is and in very simple terms, a mortgage is just the way that a bank
lends you money with a promise of repayment, okay. That's really what
it is on a very simple terms but I want to dive into some of the details of
really what a mortgages and why we even have mortgages. As you're probably aware
a lot, of you watching this right now and I'm gonna speak specifically to the
younger generation here for just a moment. You may not have a mortgage yet,
maybe you've never had one before. If you're not into
adulthood yet or if you're in your early 20's maybe, you haven't quite gotten to
that to that spot where you're ready to buy a home so maybe you've never gotten
a mortgage before. Why would a bank be willing to lend you money? Well banks are
in the business of making money, right. So when a bank lends you money or when they
give you a mortgage, you sign papers and you promise to pay them back but you're
not just gonna pay them back the amount that they lent you, you're actually gonna
pay them back interest. Now interest is that money, it's the cost of the money
that you are borrowing from the bank, right. Interest rates vary depending on
the loan that you're getting, the type of loan that you're getting which I'll talk
a little bit about here as well but that interest has to be paid over time so the
mortgage lender, the bank, they say, let's just do an example here,
they say here's $100,000 because you don't have $100,000 cash to go out and
buy a property on your own, right. They say here's $100,000 that we will lend
you, in order for us to lend this to you, they often will require you to put some
of your own skin in the game, right. They want you put a little bit of down
payment down, they call it a down payment and so you take a certain percentage of
money to put down on the property on a primary residence or home that you're
purchasing for you to live in yourself that's probably going to be somewhere
between 3% and 5% somewhere right in that range is very very typical,
sometimes you can get into different government fund
programs where you can do a 0% down program or where they basically say, hey,
we'll take that risk on ourselves or we'll offer up some of that as a
government institution to allow you to get into at home easier so some of those
things are available at times but you're typically going to put in
3% to 5% as a down payment. The bank then says, okay, you're a worthy
person to let lend to. If you're willing to put three to five percent down, we
will put the other 95% to 97% into this property and you can then purchase
it, right? So the bank then says, they then pay the person that's selling the home
that, you know, that $97,000, you put your $3,000 in,
the seller has their money, they now have sold the home to you but in that
scenario, the bank is either they own the title or they have the title to the home.
The title is the ownership document, right, basically says you own this
property so although it says you own it the bank, they are holding on to that
title for a period of time until you pay that debt off so your goal is over the
life of the loan, to pay off that loan, right. It's to pay down that hundred
thousand dollars that you borrowed from the bank or that ninety seven thousand
dollars that you borrowed from the bank this is done in an amortization schedule
so there are several different types of loans that you can get. I want to talk
about two right now just for the purposes of this video. You can either
get a 30-year loan or a 15-year loan. Now they are exactly as described, exactly as
the name says, one last 30 years, the other one lasts 15 years the 30-year
loan is very very typical, a lot of people, most people I would say that go
in to buy a home a primary residence or even an investment property will get a
30-year loan. What that allows you to do is to pay less of a payment each month
but you will end up paying probably a little bit more over time because of
course, it goes on for 30 years and you're paying interest on that loan over
the entire 30 years. A 15-year loan is sometimes attractive to individuals
because although it means a little bit more of a payment each month, you pay
over a lesser period of time. Now this is in terms of a primary residence. If
you're buying an investment property, most people, at least with the systems
that we implement and use, you're typically not going to hold on to a
property past five years so we will usually tell people to do a 30-year loan
because cash is king today, the more cash you can keep in your own pocket today,
the better you are so instead of paying more to the bank in a 15 year loan, you
may opt to pay less to a bank in a 30-year loan so that you can keep more
cash and invest more now. So a mortgage is a loan, you're getting money from the
bank, right? Or basically, the bank is paying the sellers but you're
borrowing that from the bank, you're paying interest on that mortgage and so
that's why the banks are willing to do it because they're not only getting
their principal back or the loan amount that they lent you but they're also
earning principal. Over a 30-year loan, that can equate to three times as much
as the original loan value which is why a lot of people like to pay off their
homes faster but I'm telling you right now, in investment real estate, you don't
necessarily want to pay off that loan as fast as possible, you want to use the
money to your greatest advantage. Money today is always more powerful than money
tomorrow. Typically, right? Cash is king so the more you can keep in hand and invest
if you are reinvesting in any way the better for you. Mortgage, a mortgage, it is
a loan, it is debt. A lot of people are concerned about debt, of course, we're
taught in our society to become really concerned about debt but I will tell you
this, debt can be good and debt can be bad. Consumer debt is bad, right? Don't
do so much of the consumer debt, in other words, don't rack up credit cards
to go buy clothing and toys and different things like that but if you're
buying real estate with the purpose of earning money, with the purpose of doing
a real estate type of business, with the purpose of growing a portfolio, that can
be what we call good debt, taking on a mortgage or getting a mortgage from bank,
getting a loan from a bank that you're even gonna be paying interest on, if
you're earning more an interest then you're paying out the bank in interest
that can be a really great investment because
and the payments that you're getting from the home are not only paying off
your property, paying off that mortgage, right. That monthly payment which
includes both the principal and the interest but if you're doing it right,
it's also gonna pay you above and beyond what those monthly payments are. This is
what cash flow is, this is why mortgages are great if used properly in a real
estate investment. Okay, so by now you should be ready to purchase your first
home right? You're gonna go out and get that mortgage, you know what it is.
Hopefully you understand the difference between the 15 and the 30-year, right?
What are you gonna do? I'd love to hear what you're gonna do and how you're
gonna go to and maybe the banks that you're ready to talk to you. Put them in
the comments below and keep on watching.