You're subtracting it from the income that you report to the Internal Revenue Service. 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 special thing that you could in fact subtract it straight from your credit, from your taxes, that's a tax credit, tax credit.
Therefore, in this spreadsheet I just wish to reveal you that I in fact calculated in that month how much of a tax deduction do you get. So, for example, simply off of the 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 assumptions, 35 percent of $1,700.
So, approximately throughout the first year I'm going to save about $7,000 in taxes, so that's nothing, nothing to sneeze at. Anyhow, hopefully you found this helpful and I motivate you to go to that spreadsheet and, uh, have fun with the assumptions, just the presumptions in this brown color unless you actually understand what you're making with the spreadsheet.
What I wish to do with this video is describe what a home loan is but I think the majority of us have a least a basic sense of it. However even better than that really go into the numbers and comprehend a bit of what you are really doing when you're paying a mortgage, what it's made up 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 house that I like, let's state that that is the home that I want to acquire. It has a cost tag 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 wish to buy it. I would like to purchase your house. 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 truly like to reside 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 lend me the rest of the amount I require 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 says, sure, you appear like, uh, uh, a nice guy with an excellent task who has a good credit rating.
We have to have that title of your house and as soon as you settle the loan we're going to provide you the title of your home. So what's going to click here 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 your home, the document that states who really 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, maybe 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 pledging of the title for, as the, as the security for the loan, that's what a mortgage is. And really it comes from old French, mort, suggests dead, dead, and the gage, indicates promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead pledge.
As soon as I settle the loan this promise of the title to the bank will die, it'll return to me. Which's why it's called a dead pledge or a home loan. And probably due to the fact that it comes from old French is the reason that we don't say mort gage. We say, home loan.
They're really referring to the home loan, mortgage, the mortgage loan. 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 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 actually, even 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 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 simply download this file if you wish to play with it. However what it does here is in this sort of dark brown color, these are the assumptions that you might input and that you can alter these https://pbase.com/topics/cwrict8uj4/howtoget096 cells in your spreadsheet without breaking the whole spreadsheet.
I'm buying a $500,000 house. It's a 25 percent deposit, so that's the $125,000 that I had actually conserved up, that I 'd discussed right over there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to have to obtain $375,000. It calculates it for us and then I'm going to get a pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate home loan, repaired rate, fixed rate, which implies the rates of interest won't change. We'll talk about that in a bit. This 5.5 percent that I am paying on my, on the cash that I obtained will not alter throughout the 30 years.
Now, this little tax rate that I have here, this is to in fact find out, what is the tax cost savings of the interest reduction on my loan? And we'll talk about that in a second, we can overlook it in the meantime. And after that these other things that aren't in brown, you shouldn't mess with these if you in fact do open this spreadsheet yourself.
So, it's actually the yearly rates 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 each month they see just how much money you owe and after that they will charge you this much interest on that for the month.