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 special thing that you might in fact subtract it straight from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I just wish to show you that I in fact calculated because 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 home loan payment. So, 35 percent of that, and I got the 35 percent as one of your presumptions, 35 percent of $1,700.
So, roughly throughout the very first year I'm going to save about $7,000 in taxes, so that's nothing, nothing to sneeze at. Anyway, ideally you found this helpful and I encourage you to go to that spreadsheet and, uh, play with the assumptions, just the assumptions in this brown color unless you actually understand what you're making with the spreadsheet.
What I wish to make with this video is explain what a home mortgage is however I think the majority of us have a least a basic sense of it. But even much better than that really go into the numbers and comprehend a bit of what you are in fact doing when you're paying a home loan, what it's made up of and how much of it is interest versus how much of it is actually paying down the loan.
Let's state that there is a house that I like, let's state that that is your home that I want to purchase. It has a price of, let's say that I require to pay $500,000 to purchase that home, this is the seller of the house right here.
I would like to purchase it. I would like to purchase the home. This is me right here. And I've been able to conserve up $125,000. I have actually had the ability to conserve up $125,000 however I would really like to reside 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 look like, uh, uh, a nice man with a great job who has a great credit score.
We need to have that title of the home and as soon as you pay off the loan we're going to provide you the title of your house. 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.
But the title of your home, the file that says who really owns the home, so this is the house title, this is the title of your home, home, home title. It will not go to me. It will go to the bank, the home title will go from the http://lorenzomlvl763.jigsy.com/entries/general/how-to-sell-timeshare-week seller, maybe even the seller's bank, perhaps they have not paid off 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 mortgage is. This pledging of the title for, as the, as the security for the loan, that's what a home loan is. And actually it originates from old French, mort, means dead, dead, and the gage, suggests promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead pledge.
As soon as I settle the loan this promise of the title to the bank will die, it'll come back to me. Which's why it's called a dead pledge or a mortgage. And probably since it originates from old French is the reason that we don't state mort gage. We say, mortgage.
They're actually referring to the home mortgage, home loan, the home loan. And what I wish to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to actually show you the mathematics or actually reveal you what your home loan payment is going to. And you can download, you can download this spreadsheet at Khan Academy, khanacademy.org/downloads, downloads, slash mortgage calculator, mortgage, or actually, even much better, just go to the download, simply go to the downloads, downloads, uh, folder on your web internet browser, you'll see a bunch of files and it'll be the file called mortgage calculator, home mortgage calculator, calculator dot XLSX.
But just go to this URL and then you'll see all of the files there and then you can simply download this file if you wish to have fun with it. But what it does here remains in this kind of dark brown color, these are the assumptions that you could input and that you can change these cells in your spreadsheet without breaking the whole spreadsheet.
I'm buying a $500,000 home. It's a 25 percent deposit, so that's the $125,000 that I had actually saved up, that I 'd spoken about right over there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to have to obtain $375,000. It calculates it for us and after that I'm going to get a quite plain vanilla loan.
So, thirty years, it's going to be a 30-year fixed rate home mortgage, fixed rate, repaired rate, which implies the rate of interest won't alter. We'll discuss that in a bit. This 5.5 percent that I am paying on my, on the cash that I obtained will not alter over the course of the thirty years.
Now, this little tax rate that I have here, this is to actually figure out, what is the tax cost savings of the interest reduction on my loan? And we'll discuss that in a 2nd, we can disregard 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 actually the annual rates of interest, 5.5 percent, divided by 12 and many home loan are intensified on a month-to-month basis. So, at the end Hop over to this website of on a monthly basis they see just how much cash you owe and after that they will charge you this much interest on that for the month.