You're deducting it from the earnings 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 special thing that you could actually subtract it directly from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I just wish to show you that I actually determined in that month how much of a tax deduction do you get. So, for instance, simply off of the very 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 presumptions, 35 percent of $1,700.
So, roughly over the course of the 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 valuable and I motivate you to go to that spreadsheet and, uh, play with the presumptions, just the assumptions in this brown color unless you really understand what you're doing with the spreadsheet.
What I wish to make with this video is describe what a home loan is but I think many of us have a least a basic sense of it. However even much better than that actually enter into the numbers and understand a little bit of what you are in fact doing when you're paying a mortgage, what it's made up of and how much of it is interest versus how much of it is really paying down the loan.
Let's say that there is a house that I like, let's say that that is your house that I want to purchase. It has a price of, let's say that I require to pay $500,000 to buy that home, this is the seller of your home right here.
I wish to purchase it. I would like to buy your house. This is me right here. And I have actually been able to save up $125,000. I have actually been able to save up $125,000 but I would really like to reside in that house 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 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 Check over here 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 seem like, uh, uh, a good man with a great task who has a great credit rating.
We have to have that title of your home and once 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 your house, the file that says who actually owns your home, so this is the house title, this is the title of your home, house, 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, perhaps they haven't paid off their home loan, it will go to the bank that I'm borrowing from.
So, this is the security right here. That is technically what a home loan is. This vowing of the title for, as the, as the security for the loan, that's what a home loan is. And in fact it comes from old French, mort, indicates dead, dead, and the gage, indicates promise, I'm, I'm a hundred percent sure I'm mispronouncing it, but it originates from dead promise.
As soon as I pay off the loan this pledge of the title to the bank will pass away, it'll return to me. Which's why it's called a dead promise or a mortgage. And probably due to the fact that it originates from old French is the factor why we do not state mort gage. We state, mortgage.
They're actually describing the home mortgage, home loan, the home loan. And what I wish to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to in fact show you the mathematics 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, home loan, or actually, even much better, simply go to the download, simply go to the downloads, downloads, uh, folder on your web internet browser, you'll see a lot of files and it'll be the file called mortgage calculator, home mortgage calculator, calculator dot XLSX.
But 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. However what it does here remains in this sort of dark brown color, these are the assumptions that you might input which you can alter these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying a $500,000 house. It's a 25 percent deposit, so that's the $125,000 that I had actually conserved up, that I 'd talked about right there. And then the, uh, loan amount, 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, 30 years, it's going to be a 30-year fixed rate mortgage, fixed rate, repaired rate, which suggests the rates 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 change over the course of the thirty years.
Now, this little tax rate that I have here, this is to really find out, what is the tax savings of the interest deduction on my loan? And we'll discuss that in a 2nd, we can disregard it for now. And after that 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 the yearly rates of interest, 5.5 percent, divided by 12 and a lot of home loan are intensified on a month-to-month basis. So, at the end of each month they see just how much cash you owe https://miding6ksw.doodlekit.com/blog/entry/10610012/how-to-get-rid-of-timeshare and after that they will charge you this much interest on that for the month.