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Now, what I've done here is, well, actually before I get to the chart, let me in fact show you how I determine the chart and I do this over the course of thirty years and it goes by month. So, so you can think of that there's actually 360 rows here on the real spreadsheet and you'll see that if you go and open it up. how to sell mortgages.
So, on month no, which I don't show here, you obtained $375,000. Now, over the course of 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 haven't made any mortgage payments yet.
So, now prior to I pay any of my payments, instead of owing $375,000 at the end of the first month I owe $376,718. Now, I'm a hero, I'm not The original source going to default on my mortgage so I make that very first home mortgage payment that we computed, that we computed 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 first payment I now have $125,410 in equity. So, my equity has actually increased by exactly $410. Now, you're most likely saying, hey, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity just went up by $410,000.
So, that really, in the beginning, your payment, your $2,000 payment is mainly interest. Just $410 of it is primary. However as you, and then you, and then, so as your loan balance decreases 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 home loan once again. This is my brand-new loan balance. And notice, currently by month two, $2.00 more went to primary and $2.00 less went to interest. And over the course of 360 months you're visiting that it's an http://messiahgxcr767.almoheet-travel.com/h1-style-clear-both-id-content-section-0-what-does-who-does-reverse-mortgages-mean-h1 actual, sizable distinction.
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This is the interest and principal parts of our mortgage 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 precise, this is exactly our home mortgage payment, this $2,129 (how do reverse mortgages work). Now, on that very first month you saw that of my $2,100 only $400 of it, this is the $400, just $400 of it went to in fact pay for the principal, the actual loan quantity.
The majority of it opted for the interest of the month. However as I start paying for the loan, as the loan balance gets smaller sized 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 wish to speak about in this video without making it too long is this concept of a interest tax deduction. So, a lot of times you'll hear financial organizers or realtors tell you, hey, the benefit of purchasing your house is that it, it's, it has tax advantages, and it does. how do mortgages work.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I desire to be really clear with what deductible ways. So, let's for example, speak about the interest costs. So, this whole time over 30 years I am paying $2,100 a month or $2,129.29 a month. Now, at the beginning a great deal of that is interest.
That $1,700 is tax-deductible. Now, as we go further and further every month I get a smaller and smaller tax-deductible portion of my actual mortgage payment. Out here the tax deduction is really really little. As I'm preparing to pay off my entire mortgage and get the title of my home.
This doesn't suggest, let's state that, let's state in one year, let's say in one year I paid, I do not know, I'm going to make up a number, I didn't compute 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, however let's state $10,000 went to interest. To say this deductible, and let's say prior to this, let's say before this I was making $100,000. Let's put the loan aside, let's state I was making $100,000 a year and let's state I was paying approximately 35 percent on that $100,000.
Let's say, 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. Just, this is simply a rough price quote. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not mean 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 Internal Revenue Service just 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 was able to deduct it from my income. 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 be equivalent to $31,500, put a comma here, $31,500. So, off of a $10,000 deduction, $10,000 of deductible interest, I essentially saved $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 save 35 percent of this in actual taxes.
You're deducting it from the earnings that you report to the Internal Revenue Service. 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 special thing that you might in fact 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 in fact computed in that month just how much of a tax deduction do you get. So, for instance, just 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 assumptions, 35 percent of $1,700 - what is the current interest rate for commercial mortgages?.
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So, roughly over the course of the first year I'm going to save about $7,000 in taxes, so that's nothing, nothing to sneeze at. Anyhow, hopefully you discovered this helpful and I motivate you to go to that spreadsheet and, uh, have fun with the presumptions, only the presumptions in this brown color unless you really know what you're finishing with the spreadsheet.