Say a house that’s worth half a million is bought by its first owner; first owner paid all mortgage off at some point and sell it to the 2nd owner, assuming now the house is worth one million.
Assume the 2nd owner pays $200 000 as down payment and the rest in the form of mortgage. The first owner should walk away from the deal with at least half a million cash since it’s paid off. My question is where is that money from?
In: 5
A mortgage is a loan that uses your house as collateral
You want to buy a million dollar house. You put in say 20% (200k) so you borrow 800k from the bank which is a mortgage
You pay interest over x amount of years (30 is pretty common) and once you pay it all back, it’s yours fully
If you fail to pay back the loan, the bank will force you out of the house and sell it to recoup their losses. It might be worth more or less than you paid for it, but that’s the risk the bank takes on
Now if you decide to sell the house and it’s worth 1.5million, you pay the bank back what you owe and you keep any profit
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