You're deducting it from the income 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 deduct 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 actually determined in that 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 home mortgage 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 absolutely nothing, nothing to sneeze at. Anyhow, hopefully you found 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 doing with the spreadsheet.
What I wish to do with this video is describe what a home loan is but I think the majority of us have a least a general sense of it. However even better than that really go into the numbers and comprehend a bit of what you are really doing when you're paying a mortgage, what it's made up of and how much of it is interest versus how much of it is really paying down the loan.
Let's say that there is a home that I like, let's say that that is your house that I wish to purchase. It has a price of, let's say that I require to pay $500,000 to buy that house, this is the seller of the home right here.
I want to buy it. I would like to purchase your home. This is me right here. And I've been able to save up $125,000. I've had the ability to save up $125,000 however 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 rest of the amount I need for that house, which is essentially $375,000. I'm putting 25 percent down, this right, this http://emiliofocn651.raidersfanteamshop.com/what-does-timeshare-mean Visit this website 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 an excellent task who has an excellent credit ranking.
We have to have that title of the house and as soon as you pay off the loan we're going to provide 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.
However the title of your home, the file that says who really owns your home, 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 title will go from the seller, perhaps even the seller's bank, perhaps 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 mortgage is. This promising of the title for, as the, as the security for the loan, that's what a mortgage is. And in fact it originates from old French, mort, means dead, dead, and the gage, implies pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead promise.
When I pay off the loan this pledge of the title to the bank will pass away, it'll return to me. Which's why it's called a dead pledge or a mortgage. And most likely because it comes from old French is the reason we don't state mort gage. We state, home loan.
They're really describing the home mortgage, mortgage, the mortgage. And what I wish to do in the rest of this video is use a little screenshot from a spreadsheet I made to really show you the math 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 home mortgage calculator, mortgage, or actually, even much better, simply go to the download, just 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 home loan calculator, home loan calculator, calculator dot XLSX.
However just go to this URL and after that you'll see all of the files there and after that you can simply download this file if you wish 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 and that you can change these cells in your spreadsheet without breaking the whole spreadsheet.
I'm purchasing 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 talked about 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 determines it for us and after that I'm going to get a quite plain vanilla loan.
So, 30 years, it's going to be a 30-year set rate mortgage, fixed rate, repaired rate, which means the rate of interest won't change. We'll discuss that in a bit. This 5.5 percent that I am paying on my, on the money 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 in fact 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 in the meantime. And after that these other things that aren't in brown, you should not mess with these if you actually do open this spreadsheet yourself.
So, it's literally the yearly rate of interest, 5.5 percent, divided by 12 and most mortgage loans are compounded on a monthly basis. So, at the end of every month they see just how much money you owe and after that they will charge you this much interest on that for the month.