You're deducting it from the income that you report to the Internal Revenue Service. If there's something that you could actually take directly from your taxes, that's called a tax credit. So, if you were, uh, if there was some special thing that you could actually deduct it straight from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I simply wish to show you that I really calculated in that month just how much of a tax deduction do you get. So, for instance, simply off of the very first month you Informative post 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 first year I'm going to conserve about $7,000 in taxes, so that's absolutely nothing, nothing to sneeze at. Anyhow, ideally you discovered this useful and I motivate you to go to that spreadsheet and, uh, play with the assumptions, just the assumptions in this brown color unless you truly know what you're finishing with the spreadsheet.
What I want to finish with this video is discuss what a home loan is but I believe many of us have a least a basic sense of it. However even much better than that actually enter into the numbers and understand a little bit of what you are really doing when you're paying a home loan, what it's comprised of and just 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 say that that is your home that I would like to acquire. It has a price of, let's say that I need to pay $500,000 to buy that home, this is the seller of your house right here.
I would like to purchase it. I want to buy your house. This is me right here. And I have actually had the ability to save up $125,000. I have actually had the ability to conserve up $125,000 but I would really like to reside in that home 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 rest of the amount I need for that house, 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 says, sure, you look like, uh, uh, a great person with a great task who has a great credit score.
We need to have that title of your home and once you settle the loan we're going to provide 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 your house, the document that says who really owns the house, so this is the home title, this is the title of the house, house, home 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, possibly they have not paid off 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 mortgage is. And really it comes from old French, mort, implies dead, dead, and the gage, indicates pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead promise.
As soon as I settle the loan this promise of the title to the bank will die, it'll return 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 factor why we do not state mort gage. We say, home loan.
They're really describing the home mortgage, mortgage, the mortgage loan. And what I wish to perform in the rest of this video is utilize a little screenshot from a spreadsheet I made to really show you the math or really 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 loan calculator, mortgage, or actually, even 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 mortgage calculator, home loan calculator, calculator dot XLSX.
But simply go to this URL and then you'll see all of the files there and then you can simply download this file if you want to play with it. But what it does here remains in this kind of dark brown color, these are the assumptions that you could input which you can change these cells in your spreadsheet without breaking the whole spreadsheet.
I'm buying a $500,000 house. It's a 25 percent deposit, so that's the $125,000 that I had actually saved up, that I 'd discussed 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 computes it for us and then I'm going to get a quite plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate home loan, fixed rate, repaired rate, which implies the rate of interest won't alter. We'll discuss 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 really find out, what is the tax savings of the interest reduction on my loan? And we'll speak about that in a 2nd, we can ignore it in the meantime. And after that these other things that aren't in brown, you shouldn't mess with these if you really do open up this spreadsheet yourself.
So, it's actually the annual http://cashykza479.huicopper.com/how-to-buy-a-timeshare-resale interest rate, 5.5 percent, divided by 12 and many home loan loans are compounded on a month-to-month 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.