You're subtracting it from the earnings that you report to the Internal Revenue Service. If there's something that you might 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 really subtract it straight from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I just desire to show you that I really determined in that month just 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 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, absolutely nothing to sneeze at. Anyhow, hopefully you found this handy 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 really know what you're doing with the spreadsheet.
What I wish to make with this video is explain what a mortgage is but I think the majority of us have a least a basic sense of it. But even much better than that actually http://edgarepai500.iamarrows.com/how-to-sell-wyndham-timeshare go into the numbers and understand a little bit of what you are actually doing when you're paying a home loan, what it's made up of and how much of it is interest versus just how much of it is really paying down the loan.
Let's state that there is a home that I like, let's say that that is your home that I wish to buy. It has a cost of, let's say that I require to pay $500,000 to purchase that house, this is the seller of your house right here.
I wish to buy it. I want to buy your house. This is me right here. And I've been able 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 provide me the remainder 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 states, sure, you look like, uh, uh, a nice man with an excellent task who has a great credit ranking.
We have to have that title of the home and as soon as you pay off 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.
But the title of the home, the file that states who in fact owns your home, so this is the home title, this is Discover more the title of your 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, maybe they haven't paid off their home loan, 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 really it comes from old French, mort, means dead, dead, and the gage, suggests pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead pledge.
Once I settle the loan this pledge of the title to the bank will die, it'll come back to me. Which's why it's called a dead pledge or a home mortgage. And most likely due to the fact that it originates from old French is the reason that we don't say mort gage. We say, home mortgage.
They're actually referring to the home mortgage, mortgage, the mortgage. And what I wish to do in the rest of this video is use a little screenshot from a spreadsheet I made to really reveal you the mathematics or actually show 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 loan calculator, home mortgage, or actually, even much better, simply 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 mortgage calculator, calculator dot XLSX.
However simply go to this URL and after that you'll see all of the files there and then you can just download this file if you wish to play with it. But 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 purchasing a $500,000 house. It's a 25 percent deposit, so that's the $125,000 that I had conserved up, that I 'd discussed right over there. And then the, uh, loan amount, well, I have the $125,000, I'm going to have to borrow $375,000. It computes it for us and after that I'm going to get a quite plain vanilla loan.
So, 30 years, it's going to be a 30-year fixed rate home mortgage, fixed rate, fixed rate, which suggests the interest rate will not alter. 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 over the course of the 30 years.
Now, this little tax rate that I have here, this is to actually figure out, what is the tax savings of the interest deduction on my loan? And we'll speak about that in a 2nd, we can neglect it in the meantime. And after that these other things that aren't in brown, you shouldn't tinker these if you really do open up this spreadsheet yourself.
So, it's literally the annual interest rate, 5.5 percent, divided by 12 and the majority of home loan are intensified on a month-to-month basis. So, at the end of on a monthly basis they see just how much cash you owe and then they will charge you this much interest on that for the month.