You're deducting it from the earnings that you report to the Internal Revenue Service. If there's something that you might really take directly from your taxes, that's called a tax credit. So, if you were, uh, if there was some special thing that you could really deduct it straight from your credit, from your taxes, that's a tax credit, tax credit.
Therefore, in this spreadsheet I just desire to show you that I actually determined because 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 loan 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 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 valuable 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 understand what you're doing with the spreadsheet.
What I wish 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 really enter into the numbers and understand a little bit of what you are actually doing when you're paying a home loan, what it's made up of and just how much of it is interest versus just how much of it is in fact paying down the loan.
Let's state that there is a home that I like, let's state that that is the house that I want to purchase. It has a cost tag of, let's say that I need to pay $500,000 to buy that home, this is the seller of your home right here.
I want to buy it. I wish to buy your home. This is me right here. And I have actually had the ability to conserve up $125,000. I've had the ability 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 brand-new color for the bank, so that is the bank right there.
Bank, can you lend me the rest of the quantity I require 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 says, sure, you seem like, uh, uh, a nice person with a great job who has a great credit rating.
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 house. So what's going to happen 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 file that states who in fact owns the home, so this is the home title, this is the title of your house, house, home title. It will not go to me. It will go to the bank, the house title will go from the seller, possibly even the seller's bank, maybe they have not 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 promising of the title for, as the, as the security for the loan, that's what a home mortgage is. And really it comes from old French, mort, indicates 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.
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 due to the fact that it comes from old French is the reason we do not state mort gage. We say, mortgage.
They're actually referring to the home loan, mortgage, the home loan. And what I wish to do in the rest of this video is use a little screenshot from a spreadsheet I made to actually show you the math or really show 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 mortgage calculator, mortgage, or in fact, even better, simply go to the download, simply 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 mortgage calculator, home loan 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 http://timando66w.nation2.com/how-much-is-a-timeshare-worth download this file if you wish to play with it. However what it does here remains 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 whole 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 talked about right there. And then the, uh, loan quantity, well, I have the $125,000, I'm going to need to obtain $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, repaired rate, repaired rate, which means the rates of interest will not change. We'll discuss that in a little bit. This 5.5 percent that I am paying on my, on the cash that I obtained will not change over the course of the 30 years.
Now, this little tax rate that I have here, this is to in fact figure out, what is the tax savings of the interest reduction on my loan? And we'll Additional hints discuss that in a 2nd, we can neglect 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 yearly rate of interest, 5.5 percent, divided by 12 and a lot of home loan are intensified on a monthly basis. So, at the end of monthly they see how much money you owe and then they will charge you this much interest on that for the month.