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Now, what I've done here is, well, really prior to I get to the chart, let me in fact reveal you how I calculate the chart and I do this over the course of thirty years and it goes by month. So, so you can imagine that there's in fact 360 rows here on the real spreadsheet and you'll see that if you go and open it up. non-federal or chartered banks who broker or lend for mortgages must be registered with.
So, on month zero, 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, bear 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, rather of owing $375,000 at the end of the first month I owe $376,718. Now, I'm an excellent man, I'm not going to default on my home loan so I make http://elliotvwbt003.yousher.com/more-about-what-are-interest-rates-for-mortgages that very first home loan payment that we determined, that we computed right over here.
Now, this right here, what I, little asterisk here, this is my equity now. So, keep in mind, 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 exactly $410. Now, you're probably saying, hello, 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 primarily interest. Only $410 of it is principal. However as you, and then you, and then, so as your loan balance goes down 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 new prepayment balance. I pay my home loan once again. This is my brand-new loan balance. And notification, currently by month two, $2.00 more went to principal and $2.00 less went to interest. And over the course of 360 months you're visiting that it's an actual, large distinction.
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This is the interest and primary 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 whole height, if you discover, this is the specific, this is precisely our home mortgage payment, this $2,129 (what is the current interest rate for mortgages). Now, on that really 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 opted for the interest of the month. However 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 say if we go out here, this is month 198, over 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 wish to discuss in this video without making it too long is this concept of a interest tax reduction. So, a lot of times you'll hear monetary planners or real estate agents inform you, hey, the benefit of buying your home is that it, it's, it has tax advantages, and it does. how reverse mortgages work.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I wish to be very clear with what deductible means. So, let's for circumstances, talk 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 beginning a lot of that is interest.
That $1,700 is tax-deductible. Now, as we go even more and even more monthly I get a smaller and smaller sized tax-deductible part of my actual home mortgage payment. Out here the tax deduction is really very small. As I'm getting all set to settle my entire home mortgage and get the title of my house.
This does not imply, let's say that, let's say in one year, let's say in one year I paid, I don't know, I'm going to comprise a number, I didn't determine it on the spreadsheet. Let's state 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 state 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 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 home mortgage I would pay 35 percent taxes which would have to do with $35,000 in taxes for that year. Just, 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 only paid $25,000.
So, when I inform 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 was able 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 in fact get computed.
Let's get the calculator. So, 90 times.35 is equivalent to $31,500. So, this will amount 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 conserve $10,000. So, another method to think of 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 real taxes.
You're subtracting it from the income that you report to the Internal Revenue Service. If there's something that you might really take directly from your taxes, that's called a tax credit. So, if you were, uh, if there was some unique thing that you could 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 reveal you that I actually calculated because month how much of a tax reduction do you get. So, for instance, just 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 - which of the statements below is most correct regarding adjustable rate mortgages?.
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So, roughly over the course of 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, hopefully you discovered this useful and I motivate you to go to that spreadsheet and, uh, have fun wesley timeshare cancellation reviews with the presumptions, only the presumptions in this brown color unless you actually understand what you're doing with the spreadsheet.