You're deducting it from the earnings 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 unique thing that you could actually deduct it directly 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 in fact calculated in that month how much of a tax deduction do you get. So, for instance, simply 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 assumptions, 35 percent of $1,700.
So, approximately 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, hopefully you discovered this practical and I motivate you to go to that spreadsheet and, uh, play with the presumptions, only the presumptions in this brown color unless you really understand what you're finishing with the spreadsheet.
What I wish to make with this video is describe what a home loan is however I think many of us have a least a general sense of it. But even much better than that actually enter into the numbers and understand a bit of what you are in fact 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 in fact paying down the loan.
Let's state that there is a home that I like, let's say that that is your home that I wish to purchase. It has a cost of, let's state that I need to pay $500,000 to purchase that house, this is the seller of the house right here.
I want to buy it. I want to purchase your home. This is me right here. And I have actually had http://edgarvsvp443.tearosediner.net/how-to-legally-get-out-of-bluegreen-timeshare the ability to conserve up $125,000. I've been able to conserve up $125,000 but I would truly 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 require 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 states, sure, you appear like, uh, uh, a good man with a good 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 provide you the title of your house. 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 the house, the document that says who in fact owns the house, 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 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 home 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 comes from old French, mort, suggests dead, dead, and the gage, implies pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead pledge.
Once 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 probably since it comes from old French is the reason we don't say mort gage. We state, home mortgage.
They're really describing the home loan, home loan, the home loan. And what I want to perform 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 read more home loan payment is going to. And you can download, you can download this spreadsheet at Khan Academy, khanacademy.org/downloads, downloads, slash mortgage calculator, home mortgage, or really, even much better, just go to the download, simply 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 home loan calculator, home mortgage calculator, calculator dot XLSX.
However 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 wish to have fun with it. But what it does here remains in this kind of dark brown color, these are the presumptions that you could input which you can alter these cells in your spreadsheet without breaking the entire 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 then the, uh, loan quantity, well, I have the $125,000, I'm going to need to borrow $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, repaired rate, repaired rate, which implies the rate of interest will not change. We'll speak about that in a little bit. This 5.5 percent that I am paying on my, on the cash that I obtained will not alter over the course of the 30 years.
Now, this little tax rate that I have here, this is to really figure out, what is the tax savings of the interest deduction on my loan? And we'll discuss that in a second, we can ignore it for now. And then these other things that aren't in brown, you shouldn't tinker these if you in fact do open up this spreadsheet yourself.
So, it's actually the yearly interest rate, 5.5 percent, divided by 12 and a lot of mortgage loans are intensified on a regular monthly basis. So, at the end of every month they see how much money you owe and then they will charge you this much interest on that for the month.