You're deducting it from the income that you report to the IRS. If there's something that you could 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 in fact deduct it straight from your credit, from your taxes, that's a tax credit, tax credit.
Therefore, in this spreadsheet I simply wish to show you that I really calculated because month how much of a tax deduction do you get. So, for example, simply off of the very 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 presumptions, 35 percent of $1,700.
So, approximately throughout 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 discovered this helpful and I encourage you to go to that spreadsheet and, uh, have fun with the presumptions, only the presumptions in this brown color unless you truly http://remingtonbpal060.bravesites.com/entries/general/how-to-cancel-a-timeshare understand what you're doing with the spreadsheet.
What I desire to do 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. However even better than that in fact enter into the numbers and comprehend a bit of what you are really doing when you're paying a home mortgage, what it's made up of and how much of it is interest versus how much of it is actually paying down the loan.
Let's state that there is a house that I like, let's state that that is your home that I wish to buy. It has a cost of, let's say that I need to pay $500,000 to purchase that home, this is the seller of the home right here.
I want to purchase it. I wish to purchase the home. This is me right here. And I've had the ability to save up $125,000. I've been able to conserve up $125,000 however I would actually like to live in that house 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 lend me the remainder of the amount I require for that house, 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 person with an excellent job 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 give 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 the house, the document that says who in fact owns your home, so this is the home title, this is the title of your home, house, home 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 haven't paid off their mortgage, it will go to the bank that I'm borrowing 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 really it comes from old French, mort, suggests dead, dead, and the gage, suggests pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead promise.
Once I settle the loan this pledge 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 home loan. And probably since it originates from old French is the factor why we do not state mort gage. We state, mortgage.
They're actually referring to the mortgage, home loan, the home mortgage loan. And what I desire to carry out in the rest of this video is utilize a little screenshot from a spreadsheet I made to in fact reveal you the math or really 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 mortgage calculator, home mortgage, or in fact, 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 mortgage calculator, mortgage calculator, calculator dot XLSX.
But just go to this URL and then you'll see 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 type 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 purchasing a $500,000 house. It's a 25 percent down payment, so that's the $125,000 that I had actually conserved up, that I 'd discussed 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 Check out the post right here us and after that I'm going to get a quite plain vanilla loan.
So, thirty years, it's going to be a 30-year fixed rate mortgage, fixed rate, fixed rate, which indicates the rates of interest won't alter. 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 throughout the 30 years.
Now, this little tax rate that I have here, this is to really find out, what is the tax cost savings of the interest deduction on my loan? And we'll speak about that in a 2nd, 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 rates of interest, 5.5 percent, divided by 12 and many mortgage are intensified on a regular monthly basis. So, at the end of every month they see just how much cash you owe and after that they will charge you this much interest on that for the month.