You're deducting it from the income that you report to the IRS. If there's something that you could actually take straight from your taxes, that's called a tax credit. So, if you were, uh, if there was some unique thing that you might really deduct it straight from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I simply desire to show you that I really calculated in that month just how much of a tax reduction do you get. So, for instance, just off of the 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 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, hopefully you discovered this helpful and I encourage you to go to that spreadsheet and, uh, play with the assumptions, only the presumptions in this brown color unless you truly understand what you're finishing with the spreadsheet.
What I wish to do with this video is explain what a home mortgage is but I think the majority of us have a least a general sense of it. But even much better than that really enter into the numbers and understand a 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 how much of it is actually paying down 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 say that I need to pay $500,000 to buy that house, this is the seller of the home right here.
I want to purchase it. I wish to purchase your home. This is me right here. And I've been able to conserve up $125,000. I have actually been able to save 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 new color for the bank, so that is the bank right there.
Bank, can you provide me the rest of the quantity I need 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 says, sure, you look like, uh, uh, a great person with a great task who has a great credit score.
We have to have that title of your home and once you pay off the loan we're going to provide 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 file that states who really owns the house, 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, possibly even the seller's bank, perhaps they haven't settled their home 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 vowing of the title for, as the, as the security for the loan, that's what a home mortgage is. And in fact it comes from old French, mort, means dead, dead, and the gage, indicates pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead pledge.
When 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 pledge or a mortgage. And most likely since it comes from old French is the reason we don't state mort gage. We state, home loan.
They're actually referring to the mortgage, 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 show 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 mortgage calculator, home mortgage, or actually, even much better, just go to the download, just go to the downloads, downloads, uh, folder on your web internet https://postheaven.net/vaginacq35/a-home-mortgage-is-a-type-of-loan-that-is-secured-by-property browser, you'll see a bunch 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 then you'll see all of the files there and after that you can just 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 presumptions that you could input and that 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 talked about right over there. And then the, uh, loan quantity, well, I have the $125,000, I'm going to need 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 check here mortgage, fixed rate, repaired rate, which suggests the rate of interest will not change. We'll discuss that in a little bit. This 5.5 percent that I am paying on my, on the money that I obtained will not alter over the course of the thirty years.
Now, this little tax rate that I have here, this is to in fact determine, what is the tax cost savings of the interest deduction on my loan? And we'll talk about that in a 2nd, we can neglect it in the meantime. And after that these other things that aren't in brown, you should not mess with these if you really do open this spreadsheet yourself.
So, it's actually the annual rate of interest, 5.5 percent, divided by 12 and most home loan are compounded on a monthly basis. So, at the end of on a monthly basis they see how much money you owe and then they will charge you this much interest on that for the month.