You're subtracting 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 special 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 actually computed in that month how much of a tax reduction 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 save about $7,000 in taxes, so that's absolutely nothing, nothing to sneeze at. Anyhow, ideally you found this valuable and I encourage you to go to that spreadsheet and, uh, have fun with the presumptions, just the assumptions in this brown color unless you actually know what you're making with the spreadsheet.
What I wish to make with this video is discuss what a mortgage is however I believe most of us have a least a general sense of it. But even better than that really go into the numbers and understand a little bit of what you are really doing when you're paying a home loan, 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 state that there is a home that I like, let's say that that is your home that I would like to buy. It has a cost of, let's https://zenwriting.net/tifardfljb/a-home-loan-is-a-kind-of-loan-that-is-protected-by-genuine-estate say that I need to pay $500,000 to purchase that house, this is the seller of your house right here.
I wish to purchase it. I want to buy your home. This is me right here. And I have actually had the ability to save up $125,000. I've been able to save up $125,000 but I would truly like to reside 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 amount 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 good guy with a good job who has a great credit rating.
We have to have that title of your house and once you settle the loan we're going to give you the title of your house. So what's going to happen here is we're going Great site 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 actually owns the house, so this is the home title, this is 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, perhaps they haven't settled their 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 actually it comes from old French, mort, suggests dead, dead, and the gage, indicates pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, but it comes from dead promise.
When I settle the loan this promise 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 because it originates from old French is the reason we do not say mort gage. We say, home loan.
They're actually describing the home mortgage, home loan, the mortgage. And what I want to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to really show you the mathematics or in fact reveal 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 mortgage calculator, mortgage, or actually, even better, just 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 home mortgage calculator, mortgage calculator, calculator dot XLSX.
But just go to this URL and then you'll see all of the files there and then you can simply download this file if you want to play with it. However what it does here is in this type 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 down payment, so that's the $125,000 that I had actually saved up, that I 'd spoken about right over there. And then the, uh, loan amount, well, I have the $125,000, I'm going to need to borrow $375,000. It calculates 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 fixed rate home mortgage, repaired rate, fixed rate, which means the rates 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 money that I obtained will not alter throughout the 30 years.
Now, this little tax rate that I have here, this is to actually find out, what is the tax cost savings of the interest reduction on my loan? And we'll discuss that in a second, we can disregard it for now. And after that these other things that aren't in brown, you shouldn't tinker these if you actually do open up this spreadsheet yourself.
So, it's literally the annual rates of interest, 5.5 percent, divided by 12 and a lot of home loan are intensified on a monthly basis. So, at the end of monthly they see how much cash you owe and then they will charge you this much interest on that for the month.