You're deducting it from the earnings 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 special thing that you could actually subtract it directly from your credit, from your taxes, that's a tax credit, tax credit.
Therefore, in this spreadsheet I just wish to show you that I really determined in that 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 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 nothing, absolutely nothing to sneeze at. Anyway, ideally you found this useful and I encourage you to go to that spreadsheet and, uh, have fun with the assumptions, only the presumptions in this brown color unless you actually understand what you're doing with the spreadsheet.
What I desire to make with this video is discuss what a mortgage is however I believe many of us have a least a general sense of it. However even better than that in fact go into the numbers and comprehend a little bit of what you are actually doing when you're paying a mortgage, what it's made up of and just how much of it is interest versus just how much of it is in fact paying for the loan.
Let's say that there is a house that I like, let's say that that is your home that I would like to purchase. It has a cost of, let's say that I need to pay $500,000 to buy that home, this is the seller of your house right here.
I wish to purchase it. I wish to purchase your house. This is me right here. And I have actually been able to save up $125,000. I've been able to conserve up $125,000 but I would truly 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 rest of the amount I require for that home, 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 http://andresgxbj531.over-blog.com/2020/09/how-do-i-get-a-timeshare.html a $375,000 loan? And the bank says, sure, you seem like, uh, uh, a nice guy with an excellent task who has an excellent credit ranking.
We have to have that title of your house and when you settle the loan we're going to offer 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.
However the title of your house, the document that says who actually owns your home, so this is the home title, this is the title of your 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, maybe they haven't settled 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 loan is. This promising of the title for, as the, as the security for the loan, that's what a mortgage is. And really it originates from old French, mort, suggests dead, dead, and the gage, suggests promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead promise.
As soon as I settle the loan this promise of the title to the bank will die, it'll come back to me. And that's why it's called a dead promise or a home mortgage. And probably since it originates from old French is the reason why we don't say mort gage. We say, mortgage.
They're actually describing the home mortgage, home loan, the mortgage. And what I want to perform in the rest of this video is use a little screenshot from a spreadsheet I made to in fact show you the mathematics or in fact reveal you what your home mortgage payment is going to. And you can download, you can download this spreadsheet at Khan Academy, khanacademy.org/downloads, downloads, slash home mortgage Click for info calculator, home loan, or actually, even better, just 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 loan calculator, calculator dot XLSX.
But simply go to this URL and then you'll see all of the files there and after that you can just download this file if you wish to have fun with it. But what it does here remains in this sort of dark brown color, these are the assumptions that you might input which you can change these cells in your spreadsheet without breaking the entire spreadsheet.
I'm purchasing a $500,000 home. It's a 25 percent deposit, so that's the $125,000 that I had conserved up, that I 'd talked about right over there. And then the, uh, loan quantity, 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 set rate home loan, repaired rate, repaired rate, which suggests the rates of interest won't change. We'll discuss that in a little bit. This 5.5 percent that I am paying on my, on the cash that I borrowed will not alter over the course of the thirty years.
Now, this little tax rate that I have here, this is to actually figure out, what is the tax cost savings of the interest reduction on my loan? And we'll speak about that in a second, we can overlook it in the meantime. And after that these other things that aren't in brown, you should not tinker these if you really do open up this spreadsheet yourself.
So, it's literally the yearly rates of interest, 5.5 percent, divided by 12 and the majority of home loan are intensified on a regular monthly basis. So, at the end of monthly they see just how much cash you owe and after that they will charge you this much interest on that for the month.