You're deducting it from the income that you report to the Internal Revenue Service. If there's something that you could actually take straight from your taxes, that's called a tax credit. So, if you were, uh, if there was some special thing that you might actually subtract it directly from your credit, from your taxes, that's a tax credit, tax credit.
Therefore, in this spreadsheet I just wish to show you that I actually calculated because 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 over the course of the first year I'm going to Visit website conserve about $7,000 in taxes, so that's nothing, absolutely nothing to sneeze at. Anyhow, hopefully you found this handy 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 know what you're making with the spreadsheet.
What I wish to do with this video is explain what a home mortgage is but I believe many of us have a least a basic sense of it. But even better than that in fact enter into the numbers and comprehend a little bit of what you are really doing when you're paying a home mortgage, 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 say that there is a house that I like, let's state that that is your home that I wish to buy. It has a price tag of, let's state that I require to pay $500,000 to purchase that home, this is the seller of your house right here.
I wish to buy it. I would like to buy your house. This is me right here. And I have actually had the ability to save up $125,000. I've had the ability to save up $125,000 but I would truly like to live in that home so I go to a bank, I go to a bank, get a brand-new color for the bank, so that is the bank right there.
Bank, can you lend me the remainder of the amount I require for that home, 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 person with a great task who has an excellent credit rating.
We have to have that title of the house and once you pay off the loan we're going to offer you the title of the house. 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.
But the title of your home, the file that states who really owns your 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 house title will go from the seller, possibly even the seller's bank, perhaps they have not 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 home loan is. This pledging 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, indicates dead, dead, and the gage, implies promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.
When I settle the loan this promise of the title to the bank will die, it'll come back to me. And that's why it's called a dead promise or a mortgage. And most likely due to the fact that it comes from old French is the factor why we don't state mort gage. We state, home loan.
They're actually describing the home mortgage, home mortgage, the home mortgage loan. And what I wish to do in the rest of this video is use a little screenshot from a spreadsheet I made to in fact reveal you the math or actually 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 home loan calculator, home loan, or really, even better, simply go to the download, just 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 mortgage calculator, 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 just download this file if you want to have fun with it. But what it does here remains in this kind of dark brown color, these are the assumptions that you might http://aubinauklm.booklikes.com/post/3132642/how-can-i-get-out-of-my-timeshare input which you can alter 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 conserved up, that I 'd spoken about right there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to have to borrow $375,000. It computes it for us and after that 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, fixed rate, fixed rate, which means the interest rate will not alter. We'll speak about that in a little bit. This 5.5 percent that I am paying on my, on the money that I borrowed will not change over the course of the thirty years.
Now, this little tax rate that I have here, this is to in fact determine, what is the tax savings of the interest reduction on my loan? And we'll discuss that in a second, we can overlook it in the meantime. And then these other things that aren't in brown, you should not tinker these if you actually do open this spreadsheet yourself.
So, it's actually the yearly interest rate, 5.5 percent, divided by 12 and most home loan are intensified on a monthly basis. So, at the end of each month they see just how much money you owe and after that they will charge you this much interest on that for the month.