So, now before I pay any of my payments, rather of owing $375,000 at the end of the 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 mortgage payment that we determined, 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 first payment I now have $125,410 in equity. So, my equity has gone up by precisely $410. Now, you're most likely saying, hello, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity only went up by $410,000.
So, that very, in the beginning, your payment, your $2,000 payment is primarily interest. Only $410 of https://blogfreely.net/repriafj7c/the-most-typical-mortgage-in-canada-is-the-five-year-fixed-rate-closed-home it is principal. But as you, and then you, and after that, so as your loan balance decreases you're going to pay less interest here therefore each of your payments are going to be more weighted towards principal and less weighted towards interest.
This is your brand-new prepayment balance. I pay my mortgage again. This is my new loan balance. And notification, already by month 2, $2.00 more went to principal and $2.00 less went to interest. And throughout 360 months you're going to see that it's a real, substantial distinction.
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This is the interest and principal portions of our home loan payment. So, this entire height right here, this is, let me scroll down a bit, this is by month. So, this whole height, if you see, this is the specific, this is exactly our home loan payment, this $2,129. Now, on that very first month you saw that of my $2,100 just $400 of it, this is the $400, just $400 of it went to really pay down the principal, the actual loan amount.
The majority of it opted for the interest of the month. But as I start paying down the loan, as the loan balance gets smaller sized and smaller, 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, there, that last month there was less interest so more of my $2,100 really goes to settle the loan.
Now, the last thing I want to speak about in this video without making it too long is this concept of a interest tax reduction (how do reverse mortgages work in california). So, a lot of times you'll hear financial planners or real estate agents inform you, hey, the advantage of buying your house is that it, it's, it has tax advantages, and it does.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I want to be very clear with what deductible ways. So, let's for instance, speak about the interest charges. So, this entire 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.
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That $1,700 is tax-deductible. Now, as we go further and further each month I get a smaller sized and smaller sized tax-deductible portion of my real home mortgage payment. Out here the tax deduction is in fact extremely little. As I'm preparing yourself to pay off my whole mortgage and get the title of my house.
This read more doesn't imply, let's state that, let's say in one year, let's state in one year I paid, I don't know, 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. how reverse mortgages work.
And, but let's say $10,000 went to interest. To state this deductible, and let's say before this, let's state prior to 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 roughly 35 percent on that $100,000.
Let's say, you know, if I didn't have this mortgage I would pay 35 percent taxes which would have to do with $35,000 in taxes for that year. Simply, this is just a rough estimate. Now, when you state that $10,000 is tax-deductible, the interest is tax-deductible, that does not mean that I can simply take it from the $35,000 that I would have usually owed and just paid $25,000.
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So, when I tell the Internal Revenue Service just how much did I make this year, rather of stating, I made $100,000 I say that I made $90,000 since I was able to deduct this, not straight from my taxes, I was able to deduct it from my income. So, now if I only made $90,000 and I, and this is I'm doing a gross oversimplification of how taxes actually get calculated.
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 basically conserved $3,500. I did not save $10,000. So, another method to believe about 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 subtracting it from the income 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 - how do reverse mortgages work in california. So, if you were, uh, if there was some special thing that you might actually deduct it straight from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I just desire to show you that I actually calculated because month how much of a tax deduction do you get. So, for instance, simply off of the 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 assumptions, 35 percent of $1,700.
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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. Anyhow, hopefully you discovered this helpful and I motivate you to go to that spreadsheet and, uh, play with the assumptions, only the assumptions in this brown color unless you really know what you're doing with the spreadsheet.
What I want to do with this video is discuss what a home loan is however I think many of us have a least a general sense of it. However even better than that really enter into the numbers and comprehend a little bit of what you are really doing when you're paying a mortgage, what it's comprised of and how much of it is interest versus how much of it is in fact paying for the loan - how do cash back mortgages work in canada.