You're deducting it from the income that you report to the IRS. If there's something that you might actually 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 really deduct it straight from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I simply want to show you that I actually computed in that month how much of a tax reduction do you get. So, for instance, just 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 over the course of the very first year I'm going to save about $7,000 in taxes, so that's nothing, nothing to sneeze at. Anyway, ideally you discovered this helpful and I motivate you to go to that spreadsheet and, uh, have fun with the presumptions, just the presumptions in this brown color unless you truly know what you're doing with the spreadsheet.
What I wish to finish with this video is explain what a home mortgage is however I think the majority of us have a least a general sense of it. But even much better than that actually go into the numbers and comprehend a little bit of what you are really doing when you're paying a home mortgage, what it's comprised of and how much of it is interest versus just how much of it is in fact paying down the loan.
Let's say that there is a home that I like, let's say that that is your home that I want to buy. It has a price tag of, let's say that I require to pay $500,000 to purchase that house, this is the seller of your home right here.
I would like to purchase it. I want to buy your home. This is me right here. And I've been able to conserve up $125,000. I've had the ability to conserve up $125,000 but I would actually like to reside in that house 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 provide 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 says, sure, you seem like, uh, uh, a nice guy with a good job who has a great credit ranking.
We have to have that title of your house and as soon as you pay off the loan we're going to provide 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.
However the title of your home, the file that states who really owns your home, so this is the home title, this is the title of the home, house, house 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 paid off their home loan, 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 actually it originates from old French, mort, suggests dead, dead, and the gage, means promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead pledge.
As soon as I pay off the loan this promise of the title to the bank will die, it'll come back to me. Which's why it's called a dead pledge or a home mortgage. And most likely due to the fact that it originates from old French is the reason we don't state mort gage. We say, mortgage.
They're really describing the mortgage, mortgage, the mortgage. And what I wish to carry out in the rest of this video is use a little screenshot from a spreadsheet I made to actually reveal you the math or in fact reveal you what your home loan payment is going to. And you can download, you can download this spreadsheet at Khan Academy, khanacademy.org/downloads, downloads, slash home loan calculator, home loan, or actually, even better, just go to the download, simply go to the downloads, downloads, uh, folder on your web browser, you'll see a lot of files and it'll be the file called home loan calculator, home loan calculator, calculator dot XLSX.
But http://angelouxya311.bravesites.com/entries/general/how-to-sell-my-timeshare 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. However what it does here is in this sort of dark brown color, these are the assumptions that you might input which 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 actually conserved up, that I 'd talked about right there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to have to obtain $375,000. It computes 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 home mortgage, fixed rate, fixed rate, which means Click for info 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 money that I borrowed will not alter over the course of the thirty years.
Now, this little tax rate that I have here, this is to in fact find out, what is the tax cost savings of the interest deduction on my loan? And we'll talk about that in a 2nd, we can disregard it for now. And after that these other things that aren't in brown, you should not mess with these if you actually do open up this spreadsheet yourself.
So, it's actually the yearly rate of interest, 5.5 percent, divided by 12 and most home loan are intensified on a month-to-month basis. So, at the end of every month they see just how much money you owe and after that they will charge you this much interest on that for the month.
