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 unique thing that you could really subtract it straight from your credit, from your taxes, that's a tax credit, tax credit.
Therefore, in this spreadsheet I simply want to reveal you that I in fact determined because month how much of a tax reduction do you get. So, for instance, just off of the very 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 very first year I'm going to save about $7,000 in taxes, so that's absolutely nothing, nothing to sneeze at. Anyhow, ideally you found this useful and I encourage you to go to that spreadsheet and, uh, play with the assumptions, only the presumptions in this brown color unless you actually know what you're finishing with the spreadsheet.
What I wish to do with this video is discuss what a home mortgage is however I think most of us have a least a general sense of it. However even much better than that really enter into the numbers and understand a bit of what you are really doing when you're paying a home mortgage, what it's comprised of and just how much of it is interest versus just how much of it is actually paying down the loan.
Let's state 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 cost of, let's state that I require to pay $500,000 to buy that home, this is the seller of your house right here.
I would like to purchase it. I want to purchase your home. This is me right here. And I've had the ability to conserve up $125,000. I have actually had the ability to conserve up $125,000 however I would really 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 lend me the remainder of the amount I require 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 says, sure, you appear like, uh, uh, a great man with an excellent task who has a good credit ranking.
We need to have that title of your home and as soon as you settle the loan we're going to give you the title of your home. 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.
However the title of your house, the document that says who actually owns your house, so this is the house title, this is the title of the house, 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, perhaps they have not paid off their home 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 pledging of the title for, as the, as the security for the loan, that's what a home loan is. And in fact it comes from old French, mort, implies dead, dead, and the gage, indicates pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead pledge.
When I settle the loan this pledge of the title to the bank will die, it'll return to me. And that's why it's called a dead promise or a home mortgage. And most likely due to the fact that it comes from old French is the factor why we don't say mort gage. We say, home mortgage.
They're truly referring to the home mortgage, home mortgage, the mortgage. And what I desire to do in the rest of this video is use a little screenshot from a spreadsheet I made to actually reveal you the mathematics or really reveal you what your home mortgage payment is going to. And you can download, you can download this spreadsheet at Find out more Khan Academy, khanacademy.org/downloads, downloads, slash home mortgage calculator, mortgage, or in fact, even much better, just go to the download, just 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 loan calculator, calculator dot XLSX.
But simply go to this http://beaurare392.fotosdefrases.com/how-timeshare-works URL and then you'll see all of the files there and then you can just 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 presumptions that you might input which you can change these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying a $500,000 house. It's a 25 percent down payment, so that's the $125,000 that I had actually saved up, that I 'd talked about right there. And then the, uh, loan amount, well, I have the $125,000, I'm going to have 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 fixed rate mortgage, repaired rate, repaired rate, which suggests the rates of interest will not change. We'll speak 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 in fact determine, what is the tax savings of the interest reduction on my loan? And we'll talk about that in a 2nd, we can disregard it for now. And after that 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 annual rates of interest, 5.5 percent, divided by 12 and the majority of home loan are compounded on a month-to-month basis. So, at the end of monthly they see just how much money you owe and after that they will charge you this much interest on that for the month.