You're subtracting it from the income that you report to the IRS. 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 unique thing that you could really deduct it directly from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I just want to reveal you that I actually computed because month how much of a tax deduction do you get. So, for instance, simply 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 over the course of the first year I'm going to conserve about $7,000 in taxes, so that's absolutely nothing, absolutely nothing to sneeze at. Anyway, hopefully you found this useful and I encourage 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 finishing with the spreadsheet.
What I desire to do with this video is discuss what a home loan is but I believe many of us have a least a basic sense of it. But even better than that really enter into the numbers and comprehend a little bit of what you are actually 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 say that that is your house that I would like to purchase. It has a price of, let's state that I require to pay $500,000 to purchase that house, this is the seller of your home right here.
I want to buy it. I would like to buy the house. This is me right here. And I've been able to conserve up $125,000. I've had the ability to save up $125,000 however I would actually 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 quantity 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 states, sure, you appear like, uh, uh, a good man with a good task who has an excellent credit rating.
We need to have that title of the house and when you settle 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.
However the title of your home, the document that says who really owns your house, so this is the home title, this is the title of the home, home, 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, perhaps they have not 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 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 comes from old French, mort, means dead, dead, and the gage, indicates 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 pass away, it'll return to me. And that's why it's called a dead pledge or a home loan. And most likely due to the fact that it comes from old French is the reason that we do not say mort gage. We say, home mortgage.
They're really referring to the home mortgage, home mortgage, the mortgage. And what I wish to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to actually reveal you the mathematics or really reveal you what your home mortgage https://postheaven.net/branyaa9w2/a-home-mortgage-is-a-kind-of-loan-that-is-protected-by-realty payment is going to. And you can download, you can download this spreadsheet at Khan Academy, khanacademy.org/downloads, downloads, slash home mortgage calculator, home loan, or in fact, even 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 mortgage calculator, home mortgage calculator, calculator dot XLSX.
However simply go to this URL and then you'll see check here all of the files there and then you can simply download this file if you wish to have fun with it. But what it does here remains in this kind of dark brown color, these are the assumptions 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 home. It's a 25 percent deposit, so that's the $125,000 that I had actually saved up, that I 'd talked about right over there. And then the, uh, loan amount, well, I have the $125,000, I'm going to have to obtain $375,000. It calculates it for us and after that I'm going to get a pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year set rate mortgage, fixed rate, repaired rate, which implies the rate of interest won't change. We'll speak about that in a little bit. This 5.5 percent that I am paying on my, on the money that I borrowed will not alter throughout the 30 years.
Now, this little tax rate that I have here, this is to in fact determine, what is the tax savings of the interest reduction on my loan? And we'll discuss that in a second, we can ignore it for now. And then these other things that aren't in brown, you should not tinker 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 mortgage are compounded on a month-to-month basis. So, at the end of every month they see how much cash you owe and then they will charge you this much interest on that for the month.