You're deducting it from the earnings that you report to the Internal Revenue Service. If there's something that you could actually 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 deduct it straight 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 actually calculated in that month just 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 presumptions, 35 percent of $1,700.
So, roughly throughout the first year I'm going to save about $7,000 in taxes, so that's absolutely nothing, absolutely nothing to sneeze at. Anyhow, ideally you found this practical and I encourage you to go to that spreadsheet and, uh, have fun with the assumptions, only the presumptions in this brown color unless you actually know what you're doing with the spreadsheet.
What I desire to do with this video is describe what a home mortgage is however I think many of us have a least a general sense of it. However even much better than that really enter into the numbers and understand a little bit of what you are in fact doing when you're paying a home mortgage, what it's made up of and just how much of it is interest versus just how much of it is in fact paying for the loan.
Let's state that there is a house that I like, let's state that that is your home that I wish to acquire. It has a cost of, let's say that I need to pay $500,000 to buy that house, this is the seller of your house right here.
I want to purchase it. I would like to purchase your home. This is me right here. And I've had the ability to save up $125,000. I have actually been able to save up $125,000 but I would really 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 provide me the remainder of the amount I need for that house, 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 look like, uh, uh, a good guy with a great job who has a good credit rating.
We have to have that title of your house and once you settle the loan we're going to give you the title of the 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 the house, the document that states who really owns your house, so this is the home title, this is the title of your 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, maybe 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 loan is. And actually it originates from old French, mort, implies 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.
When I pay off the loan this pledge of the title to the bank will pass away, it'll return to me. And that's why it's called a dead promise or a mortgage. And most likely because it originates from old French is the reason that we do not say mort gage. We state, mortgage.
They're truly referring to the home mortgage, mortgage, the home loan. And what I desire to perform in the rest of this video is use a little screenshot from a spreadsheet I made to in fact show you the math or actually show 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 mortgage calculator, home mortgage, or in fact, even better, just go to the download, just go to the downloads, downloads, uh, folder on your web internet browser, you'll see a bunch of files and it'll be the file called home loan calculator, mortgage calculator, calculator dot XLSX.
But simply go to this URL and after that you'll see all of the files there and after that you can simply download this file if you wish to play with it. But what it does here remains in this type of dark brown http://emiliodmna715.trexgame.net/how-to-get-out-of-a-hilton-grand-vacation-timeshare color, these are the presumptions that you might input which you can change these cells in your spreadsheet without breaking the whole spreadsheet.
I'm buying a $500,000 home. It's a 25 percent down payment, so that's the $125,000 that I had actually conserved up, that I 'd discussed right there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to need to obtain $375,000. It computes it for us and then I'm going to get a quite plain vanilla loan.
So, 30 years, it's going to be a 30-year set rate home mortgage, repaired rate, fixed rate, which indicates the rate of interest will not change. We'll talk about that in a bit. This 5.5 percent that I am paying on my, on the money 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 actually 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 disregard it for now. And then these other things that aren't in brown, you should not tinker these if you actually do open this spreadsheet yourself.
So, Additional hints it's actually the annual rate of interest, 5.5 percent, divided by 12 and the majority of mortgage are compounded on a month-to-month basis. So, at the end of every month they see just how much cash you owe and after that they will charge you this much interest on that for the month.