You're subtracting it from the income that you report to the Internal Revenue Service. If there's something that you could in fact take straight from your taxes, that's called a tax credit. So, if you were, uh, if there was some special thing that you could really subtract it straight from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I just wish to show you that I really determined because month just how much of a tax reduction do you get. So, for example, just off of the very 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 assumptions, 35 percent of $1,700.
So, roughly throughout the very first year I'm going to conserve about $7,000 in taxes, so that's absolutely nothing, absolutely nothing to sneeze at. Anyway, ideally you found this handy 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 actually understand what you're making with the spreadsheet.
What I desire to do with this video is describe what a mortgage is however I believe most of us have a least a basic sense of it. But even much better than that actually enter into the numbers and understand a little bit of what you are in fact doing when you're paying a mortgage, what it's comprised of and just how much of it is interest versus how much of it is actually paying down the loan.
Let's say that there is a home that I like, let's state that that is the house that I would like 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 buy the house. This is me right here. And I have actually been able to conserve up $125,000. I've had the ability to save up $125,000 but I would actually like to live in that house 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 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 states, sure, you look like, uh, uh, a good guy with a great task who has an excellent credit ranking.
We have to have that title of your home and as soon as you settle the loan we're going to provide you the title of your house. 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 the house, the file that says who in fact owns your house, so this is the home title, this is the title of your home, home, 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, perhaps they haven't settled their home 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 mortgage is. This pledging of the title for, as the, as the security for the loan, that's what a home loan is. And really it originates from old French, mort, means dead, dead, and the gage, means promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead promise.
As soon as I pay off the loan this pledge of the title to the bank will die, it'll come back to me. And that's why it's called a dead pledge or a home mortgage. And most likely since it comes from old French is the reason we do not state mort gage. We say, mortgage.
They're really describing the home loan, home mortgage, the home loan. And what I wish to perform in the rest of this video is utilize a little screenshot from a spreadsheet I made to actually reveal you the math or actually 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, mortgage, or actually, even much better, simply 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 mortgage calculator, home mortgage calculator, calculator dot XLSX.
However simply go to this URL and after that 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 https://rafaelyhlh056.skyrock.com/3335293756-how-to-get-out-of-a-timeshare-ownership.html does here remains in this sort of dark brown color, these are the assumptions that you might input which you can alter these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying Click for more a $500,000 home. It's a 25 percent down payment, so that's the $125,000 that I had actually saved up, that I 'd spoken about right there. And after that the, uh, loan amount, well, I have the $125,000, I'm going to need to borrow $375,000. It determines 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, fixed rate, which suggests the interest rate won't change. We'll speak about that in a little 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 really figure out, what is the tax savings of the interest deduction on my loan? And we'll discuss that in a 2nd, we can neglect 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 literally the annual rates of interest, 5.5 percent, divided by 12 and most home loan loans are intensified on a regular monthly basis. So, at the end of every month they see how much money you owe and after that they will charge you this much interest on that for the month.