You're deducting it from the income that you report to the Internal Revenue Service. If there's something that you could really take directly from your taxes, that's called a tax credit. So, if you were, uh, if there was some unique thing that you might in fact subtract it directly from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I simply wish to reveal you that I really calculated in that month how much of a tax reduction do you get. So, for example, simply off of the very 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 presumptions, 35 percent of $1,700.
So, approximately over the course of the very first year I'm going to conserve about $7,000 in taxes, so that's absolutely nothing, nothing to sneeze at. Anyway, ideally you found this practical and I encourage you to go to that spreadsheet and, uh, have fun with the presumptions, just the assumptions in this brown color unless you really understand what you're doing with the spreadsheet.
What I wish to do with this video is describe what a home loan is however I think the majority of us have a least a general sense of it. However even much better than that actually enter into the numbers and understand a bit of what you are in fact doing when you're paying a home loan, what it's comprised of and how much of it is interest versus just how much of it is in fact paying down the loan.
Let's state that there is a house that I like, let's state that that is your house that I wish to buy. It has a price of, let's say that I require to pay $500,000 to http://tituscwui835.xtgem.com/how%20do%20you%20get%20rid%20of%20a%20timeshare buy that home, this is the seller of the home right here.
I want to purchase it. I wish to buy your house. This is me right here. And I've been able to save up $125,000. I have actually been able to save up $125,000 but I would actually like to live 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 provide 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 have a loan for the balance? Can I have a $375,000 loan? And the bank says, sure, you look like, uh, uh, a nice guy with a great task who has an excellent credit score.
We have to have that title of your house and once you settle 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.
However the title of your home, the file that says who actually owns your home, so this is the house title, this is the title of the house, home, home title. It will not go to me. It will go to the bank, the house title will go from the seller, maybe even the seller's bank, maybe they haven't settled their home mortgage, it will go to the bank that I'm borrowing from.
So, this is the security right here. That is technically what a home mortgage is. This vowing of the title for, as the, as the security for the loan, that's what a home mortgage is. And in fact it comes from old French, mort, indicates dead, dead, and the gage, means promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead pledge.
As soon as I pay off the loan this promise of the title to the bank will die, it'll return to me. Which's why it's called a dead promise or a mortgage. And most likely since it originates from old French is the reason we do not state mort gage. We state, home loan.
They're actually describing the home loan, home mortgage, the home mortgage loan. And what I wish to carry out in the rest of this video is utilize a little screenshot from a spreadsheet I made to in fact reveal you the math or really reveal you what your mortgage payment is going to. And you can download, you can download this spreadsheet at Khan Academy, khanacademy.org/downloads, downloads, slash home mortgage calculator, mortgage, or in fact, even much better, simply go to the download, just go to the downloads, downloads, uh, Click for more info folder on your web browser, you'll see a bunch of files and it'll be the file called home mortgage calculator, home mortgage calculator, calculator dot XLSX.
However simply go to this URL and then you'll see all of the files there and then you can just download this file if you wish to have fun with it. But what it does here remains in this type of dark brown color, these are the assumptions that you could input which you can alter these cells in your spreadsheet without breaking the whole 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 saved up, that I 'd discussed right there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to have to obtain $375,000. It computes 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 mortgage, repaired rate, fixed rate, which suggests the rate of interest will not alter. We'll speak about that in a bit. This 5.5 percent that I am paying on my, on the money that I obtained will not alter throughout the 30 years.
Now, this little tax rate that I have here, this is to actually figure out, what is the tax savings of the interest deduction on my loan? And we'll speak about that in a second, we can disregard it for now. And then these other things that aren't in brown, you should not tinker these if you really do open this spreadsheet yourself.
So, it's literally the yearly rates of interest, 5.5 percent, divided by 12 and most home loan are compounded on a regular 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.