You're subtracting it from the income that you report to the Internal Revenue Service. If there's something that you could really 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 subtract it directly from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I just want to show you that I actually determined because month how much of a tax reduction do you get. So, for example, simply 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 presumptions, 35 percent of $1,700.
So, roughly over the course of the very first year I'm going to conserve about $7,000 in taxes, so that's absolutely nothing, nothing to sneeze at. Anyhow, hopefully you discovered this helpful and I encourage you to go to that spreadsheet and, uh, play with the assumptions, only the assumptions in this brown color unless you truly understand what you're making with the spreadsheet.
What I want to make with this video is explain what a home mortgage is but I believe the majority of us have a least a basic sense of it. But even better than that really go into the numbers and understand a bit of what you are actually doing when you're paying a mortgage, what it's made up of and just how much http://angelouxya311.bravesites.com/entries/general/how-to-sell-my-timeshare of it is interest versus just how much of it is really paying down the loan.
Let's state that there is a home that I like, let's state that that is your house that I would like to purchase. It has a rate tag of, let's state that I require to pay $500,000 to buy that home, this is the seller of the home right here.
I wish to buy it. I want to buy the house. This is me right here. And I've been able to conserve up $125,000. I have actually had the ability to conserve up $125,000 but I would actually like to live 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 provide me the remainder of the amount I need 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 states, sure, you appear like, uh, uh, a great person with a good task who has a good credit rating.
We need 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 house. So what's going to occur 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 says who in fact owns the 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, 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 mortgage is. This vowing of the title for, as the, as the security for the loan, that's what a home mortgage is. And in fact it comes from old French, mort, indicates dead, dead, and the gage, suggests pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.
As soon as I pay off the loan this promise of the title to the bank will pass away, it'll return to me. Which's why it's called a dead promise or a mortgage. And most likely since it comes from old French is the reason that we do not state mort gage. We state, home loan.
They're truly referring to the mortgage, mortgage, the mortgage loan. And what I wish to perform in the rest of this video is use a little screenshot from a spreadsheet I made to actually 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 home mortgage calculator, home loan, or really, 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 mortgage calculator, calculator dot XLSX.
However just go to this URL and then you'll see all of the files there and after that you can simply download this file if you wish to have fun with it. However what it does here remains in this type of dark brown color, these are the assumptions that you could input and that you can alter 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 conserved up, that I 'd spoken about right over there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to have to borrow $375,000. It calculates it for us and after that I'm going to get a quite plain vanilla loan.
So, 30 years, it's going to be a 30-year set rate home loan, fixed rate, repaired rate, which implies the rate of interest will not alter. We'll discuss that in a bit. This 5.5 percent that I am paying on my, on the money that I obtained will not alter throughout the 30 years.
Now, this little tax rate that I have here, this is to actually find out, what is the tax savings of the interest deduction on my loan? And we'll speak about that in website a second, we can neglect it for now. And then these other things that aren't in brown, you should not tinker these if you in fact do open up this spreadsheet yourself.
So, it's literally the annual interest rate, 5.5 percent, divided by 12 and the majority of home mortgage loans are compounded on a month-to-month basis. So, at the end of on a monthly basis they see just how much cash you owe and after that they will charge you this much interest on that for the month.