You're deducting it from the income that you report to the Internal Revenue Service. If there's something that you could really take straight from your taxes, that's called a tax credit. So, if you were, uh, if there was some special thing that you might in fact subtract it directly from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I just wish to Helpful site 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 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, 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. Anyhow, hopefully you discovered this valuable and I motivate you to go to that spreadsheet and, uh, play with the presumptions, just the presumptions in this brown color unless you truly understand what you're making with the spreadsheet.
What I desire to finish with this video is explain what a home loan is but I believe the majority of us have a least a general sense of it. However even better than that actually go into the numbers and comprehend a little bit of what you are in fact doing when you're paying a home loan, what it's made up of and how much of it is interest versus how much of it is actually paying for the loan.
Let's say that there is a home that I like, let's say that that is your home that I would like to purchase. It has a price of, let's say that I need to pay $500,000 to purchase that home, this is the seller of your home right here.
I wish to purchase it. I want to buy the house. This is me right here. And I have actually been able to save up $125,000. I've been able 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 lend me the remainder of the amount I need 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 says, sure, you look like, uh, uh, a nice https://remingtonavab925.wordpress.com/2020/09/03/how-to-legally-get-out-of-timeshare-contract/ guy with an excellent job who has a great credit ranking.
We need to have that title of your house and when you pay off the loan we're going to give you the title of your 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 your house, the document that says who actually owns your house, so this is the house title, this is the title of your home, home, house title. It will not go to me. It will go to the bank, the home title will go from the seller, maybe 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 loan is. This pledging of the title for, as the, as the security for the loan, that's what a home mortgage is. And really it originates from old French, mort, suggests dead, dead, and the gage, means pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead pledge.
Once 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 home loan. And probably because it comes from old French is the reason that we do not say mort gage. We say, home mortgage.
They're actually describing the home mortgage, home loan, 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 really show you the mathematics or in fact 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 mortgage calculator, 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 mortgage calculator, home mortgage calculator, calculator dot XLSX.
But just 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 play with it. But what it does here is in this sort of dark brown color, these are the presumptions that you might input and that you can change these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying a $500,000 house. It's a 25 percent down payment, so that's the $125,000 that I had saved up, that I 'd spoken about right there. And after that the, uh, loan quantity, 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 fixed rate home loan, fixed rate, repaired rate, which implies the rates of interest won't change. We'll discuss that in a bit. This 5.5 percent that I am paying on my, on the cash that I obtained will not change throughout the 30 years.
Now, this little tax rate that I have here, this is to in fact figure out, what is the tax cost savings of the interest reduction on my loan? And we'll discuss that in a second, 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 literally the annual rates of interest, 5.5 percent, divided by 12 and the majority of mortgage loans are compounded 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.