You're subtracting 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 really subtract it straight from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I just desire to show you that I actually determined in that 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 mortgage payment. So, 35 percent of that, and I got the 35 percent as one of your assumptions, 35 percent of $1,700.
So, roughly throughout the first year I'm going to conserve about $7,000 in taxes, so that's nothing, absolutely nothing to sneeze at. Anyhow, ideally you discovered this useful and I motivate you to go to that spreadsheet and, uh, have fun with the assumptions, just the presumptions in this brown color unless you actually know what you're making with the spreadsheet.
What I desire to make with this video is describe what a home loan is however I believe most of us have a least a general sense of it. However even much better than that really go into the numbers and comprehend a little bit of what you are actually doing when you're paying a home loan, what it's comprised of and how much of it is interest versus how much of it is really paying for the loan.
Let's say that there is a home that I like, let's state that that is your home 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 the house right here.
I want to purchase it. I would like to buy your house. 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 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 rest of the amount I need for that home, 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 says, sure, you appear like, uh, uh, a good person with an excellent task who has a good credit ranking.
We need to have that title of your home and as soon as 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.
However the title of the home, the file that states who really owns your home, so this is the home title, this is the title of your home, home, 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, maybe they haven't settled their mortgage, 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 home loan is. And actually it originates from old French, mort, implies dead, dead, and the gage, indicates 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 die, it'll return to me. And that's why it's called a dead pledge or a home loan. And most likely because it originates from old French is the reason we do not state mort gage. We say, home loan.
They're really describing the home loan, mortgage, the mortgage. And what I wish to carry out in the rest of this video is utilize a little screenshot from a spreadsheet I made to in fact show you the mathematics or actually reveal you what your home 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 mortgage, or really, even better, simply 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 home loan calculator, mortgage 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 just download this file if you desire to play with it. But what it does here remains in this type of dark brown color, these are the presumptions that you could input which you can change these cells in your spreadsheet without http://budolfqpoe.booklikes.com/post/3132158/how-do-i-get-rid-of-my-timeshare 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 over there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to have to borrow $375,000. It determines it for us and after that I'm going to get a pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year set rate home loan, fixed rate, repaired rate, which indicates the Learn here rates of interest won't alter. We'll talk about that in a little bit. This 5.5 percent that I am paying on my, on the money that I obtained will not change over the course of the thirty years.
Now, this little tax rate that I have here, this is to in fact find out, what is the tax savings of the interest deduction on my loan? And we'll speak about that in a 2nd, we can ignore it for now. 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 rates of interest, 5.5 percent, divided by 12 and many home loan loans are intensified on a month-to-month basis. So, at the end of every month they see just how much cash you owe and after that they will charge you this much interest on that for the month.