You're deducting it from the earnings Click for more info that you report to the Internal Revenue Service. If there's something that you might 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.
Therefore, in this spreadsheet I just want to reveal you that I in fact calculated because month how much of a tax reduction do you get. So, for instance, 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 assumptions, 35 percent of $1,700.
So, approximately throughout the very first year I'm going to save about $7,000 in taxes, so that's absolutely nothing, nothing to sneeze at. Anyhow, hopefully you found this practical and I motivate you to go to that spreadsheet and, uh, have fun with the presumptions, only the assumptions in this brown color unless you actually understand what you're doing with the spreadsheet.
What I desire to do with this video is discuss what a home mortgage is but I believe most of us have a least a basic sense of it. However even better than that actually enter into the numbers and understand a little bit of what you are really doing when you're paying a mortgage, what it's comprised of and how much of it is interest versus just how much of it is really paying for the loan.
Let's say that there is a house that I like, let's say that that is the house that I wish to purchase. It has a cost of, let's state that I require to pay $500,000 to purchase that house, this is the seller of your home right here.
I want to buy it. I wish to buy the home. This is me right here. And I've had the ability to conserve up $125,000. I have actually had the ability to conserve up $125,000 however I would truly 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 lend me the remainder of the quantity I need for that house, 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 states, sure, you appear like, uh, uh, a good guy with a great job who has an excellent credit ranking.
We need to have that title of the house and when you settle the loan we're going to give you the title of your home. So what's going to happen 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 the home, the file that states who really owns the house, so this is the home title, this is the title of your home, house, house title. It will not go to me. It will go to the bank, the home title will go from the seller, perhaps even the seller's bank, maybe they haven't paid off their home loan, it will go to the bank that I'm borrowing from.
So, this is the security right here. That is technically what a mortgage is. This pledging of the title for, as the, as the security for the loan, that's what a mortgage is. And in fact it comes from old French, mort, implies dead, dead, and the gage, implies pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead promise.
Once I pay off the loan this promise of the title to the bank will pass away, it'll come back to me. Which's why it's called a dead pledge or a mortgage. And probably due to the fact that it comes from old French is the reason why we don't say mort gage. We say, home loan.
They're actually describing the home mortgage, home loan, the home mortgage loan. And what I wish to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to really show you the math or actually 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, home loan, or actually, even better, simply go to the download, simply go to the downloads, downloads, uh, folder on your web browser, you'll see a bunch of files and it'll be the file called home mortgage calculator, home loan calculator, calculator dot XLSX.
But just 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 desire to have fun with it. But what it does here is in this kind of dark https://postheaven.net/branyaa9w2/a-home-mortgage-is-a-kind-of-loan-that-is-protected-by-realty brown color, these are the assumptions that you could input and that 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 there. And then the, uh, loan quantity, well, I have the $125,000, I'm going to need to obtain $375,000. It determines 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 set rate home loan, repaired rate, fixed rate, which indicates the rate of interest won't alter. We'll speak about that in a little bit. This 5.5 percent that I am paying on my, on the cash that I borrowed 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 savings of the interest reduction on my loan? And we'll speak about that in a second, we can neglect it in the meantime. And then these other things that aren't in brown, you should not mess with these if you really do open up this spreadsheet yourself.
So, it's literally the annual interest rate, 5.5 percent, divided by 12 and most home loan are intensified on a month-to-month basis. So, at the end of every month they see how much money you owe and after that they will charge you this much interest on that for the month.