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Now, what I've done here is, well, really before I get to the chart, let me actually reveal you how I determine the chart and I do this throughout 30 years and it passes month. So, so you can imagine that there's really 360 rows here on the actual spreadsheet and you'll see that if you go and open it up. how do mortgages work.
So, on month no, which I do not show here, you obtained $375,000. Now, throughout that month they're going to charge you 0.46 percent interest, keep in mind that was 5.5 percent divided by 12. 0.46 percent interest on $375,000 is $1,718.75. So, I have not made any mortgage payments yet.
So, now before I pay any of my payments, instead of owing $375,000 at the end of the very first month I owe $376,718. Now, I'm a good guy, I'm not going to default on my home mortgage so I make that first home loan payment that we calculated, that we determined right over here.
Now, this right here, what I, little asterisk here, this is my equity now. So, remember, I began with $125,000 of equity. After paying one loan balance, after, after my very first payment I now have $125,410 in equity. So, my equity has actually gone up by exactly $410. Now, you're most likely saying, hi, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity just increased by $410,000.
So, that extremely, in the start, your payment, your $2,000 payment is mainly interest. Just $410 of it is principal. However as you, and then you, and after that, so as your loan balance goes down you're going to pay less interest here and so each of your payments are going to be more weighted towards principal and less weighted towards interest.
This is your new prepayment balance. I pay my mortgage again. This is my new loan balance. And notification, already by month two, $2.00 more went to primary and $2.00 less went to interest. And throughout 360 months you're visiting that it's an actual, substantial distinction.
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This is the interest and primary parts of our home loan payment. So, this entire height right here, this is, let me scroll down a little bit, this is by month. So, this entire height, if you see, this is the exact, this is precisely our home loan payment, this $2,129 (how http://andersonwlgo442.bearsfanteamshop.com/what-is-the-current-interest-rate-on-reverse-mortgages-fundamentals-explained many mortgages can you have). Now, on that extremely first month you saw that of my $2,100 only $400 of it, this is the $400, only $400 of it went to actually pay down the principal, the real loan quantity.
Most of it chose the interest of the month. However as I begin paying down the loan, as the loan balance gets smaller and smaller sized, each of my payments, there's less interest to pay, let me do a much better color than that. There is less interest, let's state if we go out here, this is month 198, over there, that last month there was less interest so more of my $2,100 in fact goes to settle the loan.
Now, the last thing I desire to discuss in this video without making it too long is this idea of a interest tax deduction. So, a lot of times you'll hear financial planners or realtors inform you, hey, the benefit of buying your house is that it, it's, it has tax benefits, and it does. what are mortgages interest rates today.
Your interest, not your entire payment. Your interest is tax deductible, deductible. And I desire to be very clear with what deductible means. So, let's for example, talk about the interest fees. So, this whole time over thirty years I am paying $2,100 a month or $2,129.29 a month. Now, at the starting a great deal of that is interest.
That $1,700 is tax-deductible. Now, as we go further and even more every month I get a smaller sized and smaller tax-deductible portion of my actual home mortgage wiki timeshare payment. Out here the tax reduction is actually extremely little. As I'm getting all set to pay off my entire mortgage and get the title of my home.
This does not imply, let's say that, let's state in one year, let's state in one year I paid, I do not understand, I'm going to comprise a number, I didn't calculate it on the spreadsheet. Let's say in year one, year one, I pay, I pay $10,000 in interest, $10,000 in interest.
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And, but let's say $10,000 went to interest. To say this deductible, and let's state before this, let's state prior to this I was making $100,000. Let's put the loan aside, let's say I was making $100,000 a year and let's state I was paying roughly 35 percent on that $100,000.
Let's state, you know, if I didn't have this home mortgage I would pay 35 percent taxes which would be about $35,000 in taxes for that year. Simply, this is just a rough price quote. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not indicate that I can just take it from the $35,000 that I would have normally owed and just paid $25,000.
So, when I tell the IRS how much did I make this year, rather of saying, I made $100,000 I state that I made $90,000 since I had the ability to subtract this, not straight from my taxes, I had the ability to subtract it from my earnings. So, now if I just made $90,000 and I, and this is I'm doing a gross oversimplification of how taxes actually get computed.
Let's get the calculator. So, 90 times.35 amounts to $31,500. So, this will amount to $31,500, put a comma here, $31,500. So, off of a $10,000 reduction, $10,000 of deductible interest, I essentially conserved $3,500. I did not save $10,000. So, another method to consider it if I paid $10,000 interest, I'm going to, and my tax rate is 35 percent, I'm going to conserve 35 percent of this in real taxes.
You're deducting it from the earnings that you report to the IRS. If there's something that you might 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 directly from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I simply want to show you that I actually determined because month how much of a tax reduction do you get. So, for example, 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 - reverse mortgages are most useful for elders who.
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So, roughly throughout the very first year I'm going to conserve about $7,000 in taxes, so that's absolutely nothing, absolutely nothing to sneeze at. Anyway, ideally you discovered this handy and I motivate you to go to that spreadsheet and, uh, play with the assumptions, only the presumptions in this brown color unless you truly know what you're making with the spreadsheet.