You're subtracting it from the income that you report to the Internal Revenue Service. If there's something that you could really take directly from your read more 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 wish to reveal you that I really determined in that month how much of a tax reduction do you get. So, for instance, 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, roughly over the course of the very first year I'm going to conserve about $7,000 in taxes, so that's absolutely nothing, nothing to sneeze at. Anyhow, hopefully you discovered this practical and I encourage you to go to that spreadsheet and, uh, have fun with the presumptions, just the presumptions in this brown color unless you really know what you're finishing with the spreadsheet.
What I desire to make with this video is describe what a home mortgage is however I believe many of us have a least a general sense of it. However even much better than that in fact go into the numbers and understand a little bit of what you are actually doing when you're paying a mortgage, what it's comprised of and just how much of it is interest versus just how much of it is actually 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 wish to buy. It has a price of, let's say that I need to pay $500,000 to buy that home, this is the seller of your house right here.
I wish to buy it. I want to purchase the house. This is me right here. And I've had the ability to conserve up $125,000. I've had the ability to conserve up $125,000 however I would truly 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 lend 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 says, sure, you appear like, uh, uh, a great man with a great task who has a good credit rating.
We need to have that title of your home and as soon as you settle 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 house, the document that states who in fact owns the house, so this is the house title, this is the title of your home, home, house title. It will not go to me. It will go to the bank, the house title will go from the seller, perhaps even the seller's bank, possibly they haven't paid off their mortgage, it will go to the bank that I'm obtaining from.
So, this is the security right here. That is technically Go here what a home loan 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, means dead, dead, and the gage, suggests pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead pledge.
Once I pay off the loan this pledge of the title to the bank will die, it'll return to me. Which's why it's called a dead promise or a mortgage. And most likely because it originates from old French is the reason we do not state mort gage. We state, home loan.
They're really describing the home loan, home mortgage, the mortgage loan. And what I desire to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to really reveal you the math or in fact 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 loan calculator, home mortgage, or in fact, even much 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 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 want 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 and that 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 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 determines it for us and then I'm going to get a quite plain vanilla loan.
So, thirty years, it's going to be a 30-year set rate home mortgage, repaired rate, fixed rate, which suggests the rate 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 borrowed will not change over the course of the thirty years.
Now, this little tax rate that I have here, this is to really figure out, what is the tax cost savings of the interest deduction on my loan? And we'll speak about that in a second, we can overlook it in the meantime. And then these other things that aren't in brown, you should not tinker these if you really do open this spreadsheet yourself.
So, it's literally the annual rates of interest, 5.5 percent, divided by 12 and most home loan are intensified on a monthly basis. So, at the end of each month they see how much money you owe and then they will charge you this much interest on that for the month.