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Now, what I've done here is, well, in fact prior More helpful hints to I get to the chart, let me actually reveal you how I compute the chart and I do this throughout thirty years and it goes by month. So, so you can envision that there's really 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 absolutely no, which I do not show here, you borrowed $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 home loan 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 person, I'm not going to default on my mortgage so I make that very first home mortgage 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, 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 increased by precisely $410. Now, you're probably saying, hey, 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 mainly interest. Only $410 of it is principal. But as you, and after that you, and then, 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 once 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 over the course of 360 months you're going to see that it's a real, 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 bit, this is by month. So, this whole height, if you discover, this is the specific, this is exactly our mortgage payment, this $2,129 (reverse mortgages are most useful for elders who). Now, on that very first month you saw that of my $2,100 just $400 of it, this is the $400, only $400 of it went to in fact pay down 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 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 head out here, this is month 198, over there, that last month there was less interest so more of my $2,100 really goes to pay off the loan.
Now, the last thing I want to discuss in this video without making it too long is this concept of a interest tax reduction. So, a great deal of times you'll hear monetary coordinators or real estate agents tell you, hey, the benefit of purchasing your home is that it, it's, it has tax benefits, and it does. why are reverse mortgages bad.
Your interest, not your entire payment. Your interest is tax deductible, deductible. And I desire to be very clear with what deductible methods. So, let's for example, speak about the interest charges. 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 further every 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 really small. As I'm getting ready to settle my whole home loan and get the title of my home.
This does not mean, let's state that, let's say in one year, let's state in one year I paid, I do not know, I'm going to comprise a number, I didn't determine 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 say before this, let's state before 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 approximately 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. Just, this is simply a rough price quote. 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 generally owed and only paid $25,000.
So, when I inform the Internal Revenue Service just how much did I make this year, instead of saying, I made $100,000 I say that I made $90,000 because I had the ability to subtract this, not straight from my taxes, I was able to subtract 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 really get computed.
Let's get the calculator. So, 90 times.35 is equal 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 saved $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 conserve 35 percent of this in real taxes.
You're subtracting it from the earnings that you report to the Internal Revenue Service. 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 could actually 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 actually computed in that month just how much of a tax reduction do you get. So, for instance, 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 - how many mortgages can you have.
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So, approximately 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. Anyway, ideally you discovered this helpful and I encourage you to go to that spreadsheet and, uh, have fun with the presumptions, just the assumptions in this brown color unless you truly know timeshare groups what you're doing with the spreadsheet.