You're deducting it from the income that you report to the IRS. If there's something that you might actually take directly from your taxes, that's called a tax credit. So, if you were, uh, if there was some special thing that you might in fact deduct it directly from your credit, from your taxes, that's a tax credit, tax credit.
Therefore, in this spreadsheet I simply wish to reveal you that I really computed because month just how much of a tax reduction do you get. So, for example, just off of the first month you paid $1,700 in interest of your $2,100 mortgage payment. So, 35 percent of that, and I got the 35 percent as one of your assumptions, 35 percent of $1,700.
So, roughly over the course of the first year I'm going to save about $7,000 in taxes, so that's nothing, absolutely nothing to sneeze at. Anyway, hopefully you discovered this valuable and I encourage you to go to that spreadsheet and, uh, have fun with the presumptions, only the presumptions in this brown color unless you truly understand what you're making with the spreadsheet.
What I wish to do with this video is discuss what a home loan is but I believe the majority of us have a least a basic sense of it. But even much better than that really enter into the numbers and comprehend a little bit of what you are actually doing when you're paying a home mortgage, what it's made up of and just how much of it is interest versus just how much of it is actually paying down the loan.
Let's state that there is a home that I like, let's say that that is your house that I want to buy. It has a price of, let's say that I need to pay $500,000 to purchase that house, this is the seller of the house right here.
I wish to purchase it. I wish to buy your house. This is me right here. And I have actually had the ability to save up $125,000. I've had the ability to conserve up $125,000 but I would truly like to live in that house 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 provide me the remainder of the amount I require for that house, which is basically $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 have a loan for the balance? Can I have a $375,000 loan? And the bank states, sure, you seem like, uh, uh, a good person with a good job who has a good credit score.
We need to have that title of your home and once you pay off the loan we're going to offer you the title of the home. So what's going to take place here is we're going to have the loan is going to go to me, so it's $375,000, $375,000 loan.
But the title of your home, the document that says who really owns the house, so this is the home title, this is the title of the house, home, house title. It will not go to me. It will go to the bank, the home title will go from the seller, perhaps http://beaurare392.fotosdefrases.com/how-timeshare-works even the seller's bank, possibly they have not 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 home loan 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, suggests dead, dead, and the gage, means pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead promise.
When I settle the loan this pledge of the title to the bank will pass away, it'll come back to me. Which's why it's called a dead promise or a home mortgage. And probably due to the fact that it comes from old French is the reason why we don't say mort gage. We state, mortgage.
They're actually referring to the mortgage, mortgage, the mortgage. And what I desire to perform in the rest of this video is utilize a little screenshot from a spreadsheet I made to in fact reveal you the math or actually 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 home loan calculator, 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 lot of files and it'll be the file called mortgage calculator, mortgage calculator, calculator dot Visit this site XLSX.
But just go to this URL and after that you'll see all of the files there and after that you can just download this file if you want to play with it. But what it does here remains in this kind of dark brown color, these are the assumptions that you could input which you can alter these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying a $500,000 home. It's a 25 percent down payment, so that's the $125,000 that I had actually conserved up, that I 'd spoken about right over there. And then the, uh, loan quantity, 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, 30 years, it's going to be a 30-year set rate mortgage, repaired rate, fixed rate, which means the rate of interest won't change. We'll discuss that in a little bit. This 5.5 percent that I am paying on my, on the cash that I obtained will not change over the course of the thirty years.
Now, this little tax rate that I have here, this is to really figure out, what is the tax cost savings of the interest reduction on my loan? And we'll speak about that in a second, we can overlook it for now. And after that these other things that aren't in brown, you should not tinker these if you really do open up this spreadsheet yourself.
So, it's literally the annual rate of interest, 5.5 percent, divided by 12 and many mortgage loans are intensified on a monthly basis. So, at the end of every month they see just how much cash you owe and after that they will charge you this much interest on that for the month.