You're subtracting it from the income that you report to the Internal Revenue Service. 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 unique thing that you could really deduct it straight from your credit, from your taxes, that's a tax credit, tax credit.
Therefore, in this spreadsheet I just desire to reveal you that I in fact computed in that month just 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 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, absolutely nothing to sneeze at. Anyhow, ideally you discovered this useful and I encourage you to go to that spreadsheet and, uh, play with the assumptions, just the assumptions in this brown color unless you really know what you're doing with the spreadsheet.
What I want to do with this video is discuss what a mortgage is however I believe most of us have a least a general sense of it. However even much better than that really 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 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 house that I want to purchase. It has a price of, let's state that I require to pay $500,000 to buy that house, this is the seller of your home right here.
I want to purchase it. I would like to purchase your 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 but 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 provide me the Homepage rest of the amount I require 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 seem like, uh, uh, a good guy with a great task who has a good credit rating.
We need to have that title of the home and once you pay off the loan we're going to offer 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.
But the title of the house, the document that states who really owns the home, so this is the home title, this is the title of your home, house, home 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, perhaps they haven't paid off their home 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 vowing of the title for, as the, as the security for the loan, that's what a home loan is. And in fact it originates from old French, mort, indicates dead, dead, and the gage, indicates pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.
When I pay off the loan this pledge of the title to the bank will die, it'll return to me. Which's why it's called a dead pledge or a home loan. And probably because it comes from old French is the http://deanibgp222.almoheet-travel.com/who-has-the-best-timeshare-program reason we don't state mort gage. We state, home mortgage.
They're truly describing the home loan, home loan, the mortgage. And what I desire to carry out in the rest of this video is use a little screenshot from a spreadsheet I made to actually reveal you the mathematics or in fact 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 loan calculator, mortgage, or actually, even much better, just 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 home mortgage calculator, home mortgage calculator, calculator dot XLSX.
However simply go to this URL and after that you'll see all of the files there and after that you can just download this file if you wish to have fun with it. However what it does here remains in this kind of dark brown color, these are the assumptions that you could input and that you can alter these cells in your spreadsheet without breaking the entire spreadsheet.
I'm purchasing a $500,000 home. It's a 25 percent deposit, so that's the $125,000 that I had saved up, that I 'd spoken about right over there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to have to borrow $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 mortgage, repaired rate, repaired rate, which indicates the interest rate won't alter. We'll talk about that in a 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 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 should not mess with these if you in fact do open this spreadsheet yourself.
So, it's actually the yearly rate of interest, 5.5 percent, divided by 12 and most home loan are intensified on a regular 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.