You're deducting it from the earnings that you report to the IRS. If there's something that you might really 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 in fact subtract it straight from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I just want to show you that I in fact calculated because month how much of a tax reduction do you get. So, for instance, just 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, approximately over the course of the very first year I'm going to conserve about $7,000 in taxes, so that's nothing, absolutely nothing to sneeze at. Anyway, hopefully you discovered this practical and I motivate you to go to that spreadsheet and, uh, have fun with the assumptions, just the presumptions in this brown color unless you really know what you're doing with the spreadsheet.
What I wish to finish with this video is describe what a home mortgage is however I believe the majority of us have a least a basic sense of it. But even better than that really enter into the numbers and understand a bit of what you are really 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 state that there is a home that I like, let's state that that is your house that I would like to acquire. It has a cost of, let's say that I need to pay $500,000 to buy that home, this is the seller of the house right here.
I wish to purchase it. I wish to buy your home. This is me right here. And I have actually been able to save up $125,000. I've had the ability to save up $125,000 but I would actually 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 lend me the remainder of the quantity I need for that home, 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 person with a good job who has a great credit rating.
We have to have that title of your home and when 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.
But the title of your house, the document that states who in fact owns your house, so this is the home 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, possibly even the seller's bank, perhaps they have not 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 loan is. This vowing of the check here title for, as the, as the security for the loan, that's what a home mortgage is. And really it originates from old French, mort, indicates dead, dead, and the gage, implies pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead promise.
Once I pay off the loan this pledge 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 mortgage. And most likely due to the fact that it originates from old French is the reason that we do not state mort gage. We state, home mortgage.
They're truly describing the home loan, home loan, the home mortgage loan. And what I wish to do in the rest of this video is utilize a little screenshot from a spreadsheet I made to actually show you the math or really reveal you what your home 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 really, 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 bunch of files and it'll be the file called home mortgage calculator, mortgage calculator, calculator dot XLSX.
But simply go to this URL http://tituscwui835.xtgem.com/how%20do%20you%20get%20rid%20of%20a%20timeshare and after that you'll see all of the files there and after that you can simply download this file if you desire to have fun with it. However what it does here remains in this kind 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 whole spreadsheet.
I'm buying a $500,000 house. It's a 25 percent down payment, so that's the $125,000 that I had saved 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 obtain $375,000. It calculates it for us and then I'm going to get a pretty plain vanilla loan.
So, thirty years, it's going to be a 30-year set rate mortgage, repaired rate, repaired rate, which means the interest rate will not 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 alter over the course of the thirty years.
Now, this little tax rate that I have here, this is to actually figure out, what is the tax savings of the interest reduction on my loan? And we'll discuss that in a second, 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 up this spreadsheet yourself.
So, it's actually the annual rate of interest, 5.5 percent, divided by 12 and a lot of home loan loans are intensified on a monthly basis. So, at the end of every month they see just how much money you owe and after that they will charge you this much interest on that for the month.