You're deducting it from the earnings that you report to the Internal Revenue Service. If there's something that you could really 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 really deduct it straight from your credit, from your taxes, that's a tax credit, tax credit.
Therefore, in this spreadsheet I simply want to reveal you that I in fact determined in that month how much of a tax deduction do you get. So, for instance, just off of the very 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 presumptions, 35 percent of $1,700.
So, roughly over the course of the first year I'm going to save about $7,000 in taxes, so that's nothing, nothing to sneeze at. Anyway, hopefully you found this practical and I encourage you to go to that spreadsheet and, uh, have fun with the assumptions, just the assumptions in this brown color unless you truly know what you're finishing with the spreadsheet.
What I wish to finish with this video is describe what a home mortgage is however I think most of us have a least a general sense of it. However even better than that in fact go into the numbers and comprehend website 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 just how much of it is actually paying down the loan.
Let's state that there is a home that I like, let's say that that is your house that I would like to purchase. It has a cost of, let's state that I require to pay $500,000 to purchase that home, this is the seller of the house right here.
I would like to buy it. I want to buy the home. This is me right here. And I've been able to conserve up $125,000. I have actually been able 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 provide me the remainder of the quantity 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 says, sure, you appear like, uh, uh, a good guy with a great job who has a great credit ranking.
We have to have that title of your home and once you pay off the loan we're going to provide you the title of your house. So what's going to occur 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 home, the file that states who actually owns your home, so this is the house title, this is the title of the 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, possibly they haven't settled their home mortgage, it will go to the bank that I'm obtaining from.
So, this is the security right here. That is technically what a home loan is. This promising of the title for, as the, as the security for the loan, that's what a home loan is. And actually it comes from old French, mort, indicates dead, dead, and the gage, means pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead pledge.
Once I pay off the loan this pledge of the title to the bank will pass away, it'll come back to me. And that's why it's called a dead pledge or a home mortgage. And probably since it originates from old French is the reason we don't state mort gage. We say, home mortgage.
They're really describing the home loan, home mortgage, the home loan. 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 math or really show 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 actually, even better, simply 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.
But simply go to this URL and then you'll see all of the files there and then you can just download this file if you wish to play with it. However what it does here remains in this type of dark brown color, these are the assumptions that you could input which you can alter these cells in your spreadsheet without breaking the whole spreadsheet.
I'm purchasing a $500,000 home. It's a 25 percent deposit, so that's the $125,000 that I http://meggurs0hx.nation2.com/what-is-a-timeshare 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 need to obtain $375,000. It calculates it for us and then I'm going to get a pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate mortgage, fixed rate, repaired rate, which indicates the rates of interest will not change. We'll speak about that in a bit. This 5.5 percent that I am paying on my, on the cash that I borrowed will not change over the course of the 30 years.
Now, this little tax rate that I have here, this is to really determine, what is the tax cost 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 then these other things that aren't in brown, you should not mess with these if you actually do open this spreadsheet yourself.
So, it's actually the yearly interest rate, 5.5 percent, divided by 12 and a lot of home mortgage loans are compounded on a monthly basis. So, at the end of monthly they see just how much money you owe and then they will charge you this much interest on that for the month.