So, now before I pay any of my payments, rather of owing $375,000 at the end of the very first month I owe $376,718. Now, I'm a great person, I'm not going to default on my home loan so I make that first home mortgage 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, keep in mind, 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 gone up by exactly $410. Now, you're probably saying, hello, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity just went up by $410,000.
So, that extremely, 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 new prepayment balance. I pay my mortgage once again. This is my brand-new loan balance. And notice, 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, large difference.
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This is the interest and principal parts of our home mortgage 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 exact, this is exactly our mortgage 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 actually pay for the principal, the actual loan amount.
The majority of it chose the interest of the month. But as I begin paying down 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 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 in fact goes to settle the loan.
Now, the last thing I wish to talk about in this video without making it too long is this idea of a interest tax reduction (how do home mortgages work). So, a great deal of times you'll hear financial coordinators or realtors inform you, hey, the benefit of purchasing your home is that it, it's, it has tax advantages, and it does.
Your interest, not your entire payment. Your interest is tax deductible, deductible. And I want to be very clear with what deductible means. So, let's for instance, talk about the interest costs. 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 lot of that is interest.
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That $1,700 is tax-deductible. Now, as we go further and even more every month I get a smaller and smaller tax-deductible part of my real home loan payment. Out here the tax reduction is in fact really little. As I'm preparing to pay off my whole home mortgage and get the title of my home.
This doesn't suggest, let's state that, let's state in one year, let's state in one year I paid, I don't 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. how do reverse mortgages work after death.
And, but let's say $10,000 went to interest. To state this deductible, and let's state before this, let's state before this I was making $100,000. Let's put the loan Visit this page 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 understand, if I didn't have this 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 imply 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 how much did I make this year, rather of stating, I made $100,000 I state that I made $90,000 due to the fact that I had the ability to deduct this, not directly from my taxes, I had the ability 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 really get computed.
Let's get the calculator. So, 90 times.35 amounts to $31,500. So, this will be equal 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 think about 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 actual taxes.
You're subtracting it from the earnings that you report to the Internal Revenue Service. If there's something that you could really take directly from your taxes, that's called a tax credit - how do reverse mortgages work after death. So, if you were, uh, if there was some unique http://kameronvfqx652.yousher.com/h1-style-clear-both-id-content-section-0-the-9-minute-rule-for-how-do-mortgages-work-in-sweden-h1 thing that you could in fact subtract it straight from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I just wish to reveal you that I really determined in that month just how much of a tax reduction do you get. So, for example, just off of the 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 presumptions, 35 percent of $1,700.
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So, roughly over the course of the first year I'm going to conserve about $7,000 in taxes, so that's nothing, nothing to sneeze at. Anyway, hopefully you found this useful and I encourage you to go to that spreadsheet and, uh, have fun with the presumptions, just the presumptions in this brown color unless you actually know what you're finishing with the spreadsheet.
What I want to finish with this video is discuss what a mortgage is however I believe many of us have a least a basic sense of it. But even much better than that in fact go into the numbers and comprehend a little bit of what you are really doing when you're paying a mortgage, what it's made up of and just how much of it is interest versus just how much of it is really paying for the loan - how do reverse mortgages work in california.