You're deducting it from the income that you report to the IRS. If there's something that you might in fact take straight from your taxes, that's called a tax credit. So, if you were, uh, if there was some unique thing that you could really deduct 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 in fact computed because month just how much of a tax deduction do you get. So, for instance, simply 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 presumptions, 35 percent of $1,700.
So, approximately throughout the very first year I'm going to conserve about $7,000 in taxes, so that's nothing, nothing to sneeze at. Anyhow, hopefully you discovered this practical and I motivate you to go to that spreadsheet and, uh, play with the assumptions, only the assumptions in this brown color unless you truly understand what you're making with the spreadsheet.
What I desire to make with this video is explain what a mortgage is but I believe the majority of us have a least a general sense of it. However even much better than that in fact enter into the numbers and understand a bit of what you are really doing when Check out here you're paying a home mortgage, what it's comprised of and 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 state that that is your home that I want to buy. It has a cost of, let's state that I require to pay $500,000 to purchase that home, this is the seller of your home right here.
I want to buy it. I would like to purchase your home. This is me right here. And I've had the ability to conserve up $125,000. I've been able to save up $125,000 however 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 provide me the rest of the quantity 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 nice person with an excellent task who has a good credit rating.
We need to have that title of the home and once you pay off the loan we're going to offer you the title of the house. So what's going to take place 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 says who really owns your house, so this is the home title, this is the title of your home, home, home title. It will not go to me. It will go to the bank, the house title will go from the seller, maybe even the seller's bank, maybe they haven't settled their 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 mortgage is. This vowing of the title for, as the, as the security for the loan, that's what a home mortgage is. And actually it comes from old French, mort, means dead, dead, and the gage, implies promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead promise.
Once I settle 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 pledge or a home loan. And probably because it originates from old French is the reason we do not state mort gage. We say, home mortgage.
They're actually describing the https://postheaven.net/margarhva1/a-home-mortgage-is-a-kind-of-loan-that-is-protected-by-genuine-estate home mortgage, home loan, the home mortgage loan. And what I wish to perform in the rest of this video is use a little screenshot from a spreadsheet I made to actually reveal you the math or in fact show you what your mortgage payment is going to. And you can download, you can download this spreadsheet at Khan Academy, khanacademy.org/downloads, downloads, slash home loan calculator, mortgage, or really, even 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 mortgage calculator, mortgage calculator, calculator dot XLSX.
However just 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 have fun with it. But what it does here is in this sort of dark brown color, these are the presumptions that you could 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 actually saved up, that I 'd discussed right over there. And then the, uh, loan quantity, well, I have the $125,000, I'm going to have to borrow $375,000. It calculates 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 means the interest rate will not alter. We'll speak about that in a bit. This 5.5 percent that I am paying on my, on the cash that I borrowed will not change over the course of the thirty 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 deduction on my loan? And we'll discuss that in a second, we can overlook it for now. And after that these other things that aren't in brown, you should not mess with these if you actually do open this spreadsheet yourself.
So, it's literally the yearly interest rate, 5.5 percent, divided by 12 and many mortgage are compounded 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.