You're subtracting it from the earnings that you report to the IRS. If there's something that you might really take straight from your taxes, that's called a tax credit. So, if you were, uh, if there was some unique thing that you might in fact subtract it straight from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I simply desire to reveal 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 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 first year I'm going to conserve about $7,000 in taxes, so that's absolutely nothing, absolutely nothing to sneeze at. Anyway, hopefully you discovered this handy and I motivate you to go to that spreadsheet and, uh, have fun with the presumptions, just the assumptions in this brown color unless you actually know what you're finishing with the spreadsheet.
What I desire to make with this video is describe what a home mortgage is however I believe the majority 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 mortgage, what it's made up of and how much of it is interest versus how much of it is really paying for the loan.
Let's state that there is a house that I like, let's say that that is your home that I wish to buy. It has a price of, let's state that I require to pay $500,000 to buy that home, this is the seller of the home right here.
I want to purchase it. I would like to purchase the house. This is me right here. And I have actually had the ability to conserve up $125,000. I have actually been able to conserve up $125,000 however I would actually 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 remainder of the amount I require for that home, 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 states, sure, you appear like, uh, uh, a great guy with an excellent job who has an excellent credit rating.
We need to have that title of your home and when you settle the loan we're going to give you the title of your house. So what's going to take place here is we're going http://angelobwuy350.raidersfanteamshop.com/how-to-cancel-timeshare to have the loan is going to go to me, so it's $375,000, $375,000 loan.
But the title of the home, the document that states who really owns your house, so this is the house 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, perhaps even the seller's bank, maybe they haven't paid off their 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 mortgage is. This pledging of the title for, as the, as the security for the loan, that's what a home mortgage is. And actually it comes from old French, mort, suggests dead, dead, and the gage, implies promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead pledge.
As soon as 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 promise or a home loan. And probably since it comes from old French is the reason that we don't say mort gage. We say, mortgage.
They're actually referring to the home mortgage, home mortgage, the home mortgage loan. And what I want to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to in fact reveal you the math or in fact 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 mortgage calculator, mortgage, or actually, even better, just 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 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 wish to play with it. But what it does here remains in this type of dark brown color, these are the assumptions that you could input which you can change these cells in your spreadsheet without breaking the entire spreadsheet.
I'm purchasing 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 there. And after that the, uh, loan amount, Check out here well, I have the $125,000, I'm going to have to obtain $375,000. It computes 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 fixed rate home loan, fixed rate, fixed rate, which means the rate of interest will not alter. We'll talk about that in a 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 thirty years.
Now, this little tax rate that I have here, this is to actually 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 overlook it for now. And after that 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 annual rate of interest, 5.5 percent, divided by 12 and many home mortgage loans are compounded on a month-to-month basis. So, at the end of on a monthly basis they see just how much cash you owe and then they will charge you this much interest on that for the month.