You're subtracting it from the income that you report to the IRS. If there's something that you could in fact take straight from your taxes, that's called a tax credit. So, if you were, uh, if there was some special thing that you could in fact subtract it straight 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 actually calculated in that month just how much of a tax deduction do you get. So, for example, simply off of the 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 handy and I motivate you to go to that spreadsheet and, uh, play with the assumptions, just the presumptions in this brown color unless you actually understand what you're finishing with the spreadsheet.
What I want to do with this video is discuss what a mortgage is however I think the majority of us have a least a basic sense of it. However even better than that in fact 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 comprised of and just how much of it is interest versus how much of it is actually paying for the loan.
Let's say that there is a home that I like, let's state that that is your house that I would like to purchase. It has a rate tag of, let's state that I need to pay $500,000 to purchase that house, this is the seller of your house right here.
I wish to purchase it. I would like to purchase the home. This is me right here. And I've had the ability to save up $125,000. I have actually been able to save up $125,000 but I would really 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 lend me the rest of the quantity I need 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 great man with a great job who has a great credit ranking.
We need to have that title of the home and as soon as you pay off the loan we're going to give you the title of your 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.
However the title of your home, the document that says who in fact owns your house, so this is the house title, this is the title of your home, house, house title. It will not go to me. It will go to the bank, the house read more title will go from the seller, perhaps even the seller's bank, perhaps they have not settled their home loan, it will https://writeablog.net/frazigwfd5/a-mortgage-is-a-kind-of-loan-that-is-protected-by-genuine-estate 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 promising of the title for, as the, as the security for the loan, that's what a mortgage is. And really it comes from old French, mort, implies dead, dead, and the gage, suggests pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead promise.
As soon as I settle the loan this pledge of the title to the bank will pass away, it'll come back to me. And that's why it's called a dead pledge or a home mortgage. And most likely since it originates from old French is the reason that we do not say mort gage. We say, home mortgage.
They're actually describing the home loan, home loan, the mortgage loan. And what I want to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to in fact reveal you the mathematics or really show 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 mortgage calculator, mortgage, or in fact, even much better, simply go to the download, simply go to the downloads, downloads, uh, folder on your web internet browser, you'll see a lot of files and it'll be the file called mortgage calculator, home loan calculator, calculator dot XLSX.
But simply go to this URL and then you'll see all of the files there and after that you can simply download this file if you want to play with it. But what it does here remains in this type of dark brown color, these are the presumptions that you might input which you can change these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying a $500,000 house. It's a 25 percent down payment, so that's the $125,000 that I had actually conserved up, that I 'd discussed right over there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to have to obtain $375,000. It calculates it for us and then I'm going to get a pretty plain vanilla loan.
So, thirty years, it's going to be a 30-year fixed rate home loan, repaired rate, repaired rate, which indicates the rate of interest will not change. We'll talk about that in a bit. This 5.5 percent that I am paying on my, on the money that I borrowed will not alter over the course of the 30 years.
Now, this little tax rate that I have here, this is to actually determine, what is the tax savings of the interest reduction on my loan? And we'll talk about that in a second, we can ignore it in the meantime. And after that these other things that aren't in brown, you shouldn't mess with these if you in fact do open up this spreadsheet yourself.
So, it's literally the yearly rates of interest, 5.5 percent, divided by 12 and many home loan are intensified on a regular monthly basis. So, at the end of every month they see how much cash you owe and after that they will charge you this much interest on that for the month.