You're subtracting it from the income that you report to the IRS. If there's something that you could actually take directly 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 simply want to show you that I actually computed in that month just how much of a tax deduction do you get. So, for instance, just off of the 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 assumptions, 35 percent of $1,700.
So, roughly throughout the first year I'm going to save about $7,000 in taxes, so that's absolutely nothing, absolutely nothing to sneeze at. Anyhow, ideally you discovered this practical and I encourage you to go to that spreadsheet and, uh, play with the presumptions, just the presumptions in this brown color unless you truly know what you're making with the spreadsheet.
What I want to finish with this video is discuss what a mortgage is but I believe most of us have a least a general sense of it. But even better than that actually enter into the numbers and comprehend a bit of what you are actually doing when you're paying a home mortgage, what it's made up of and how much of it is interest versus just how much of it is in fact paying for the loan.
Let's state that there is a home that I like, let's say that that is your house that I want to buy. It has a price of, let's state that I need to pay $500,000 to buy that home, this is the seller of your house right here.
I want to buy it. I want to purchase the home. This is me right here. And I have actually had the ability to conserve up $125,000. I have actually had the ability to save 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 new color for the bank, so that is the bank right there.
Bank, can you lend me the rest of the quantity 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 a $375,000 loan? And the bank states, sure, you look like, uh, uh, a nice person with a great task who has a good credit ranking.
We need to have that title of the house and once you pay off the loan we're going to offer you the title of your home. So what's going to happen 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 home, the document that states who actually owns the home, so this is the home title, this is the title of the house, home, 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, maybe they haven't 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 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 originates from old French, mort, suggests dead, dead, and the gage, implies promise, I'm, I'm a hundred percent sure I'm mispronouncing it, however it comes from dead pledge.
As soon as I pay off the loan this promise of the title to the bank will pass away, it'll come back to me. Which's why it's called a dead promise or a home loan. And most likely due to the fact that it comes from old French is the reason that we do not say mort gage. We say, home mortgage.
They're truly referring to the home mortgage, home mortgage, the home loan. And what I want 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 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, mortgage, or actually, 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 mortgage calculator, home loan 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 is in this type of dark brown color, these are the assumptions that you could input which 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 down payment, so that's the $125,000 that I had conserved up, that I 'd talked about right there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to have to borrow $375,000. It determines it for us and after that I'm going to get a pretty plain vanilla loan.
So, 30 years, it's going to be a 30-year set rate mortgage, repaired rate, fixed rate, which means the rates of interest won't alter. We'll discuss that in a bit. This 5.5 percent that I am paying on my, on the cash that I obtained will not change throughout the 30 years.
Now, this little tax rate that I have here, this is to really determine, what is the tax cost savings of the interest deduction on my loan? And we'll talk about that in a second, we can neglect it in the meantime. And then these other things that aren't in brown, you should not mess with these if you in fact do open up this spreadsheet yourself.
So, it's literally Look at more info the yearly 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 every month they see how much money you owe and after that they will charge you this much interest Visit the website on that for the month.