So, now before 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 good guy, I'm not going to default on my home loan 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, 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 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 increased by $410,000.
So, that extremely, in the start, your payment, your $2,000 payment is mostly interest. Just $410 of it is primary. However as you, and then you, and after that, so as your loan balance goes down 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 mortgage again. This is my brand-new loan balance. And notification, currently by month 2, $2.00 more went to primary and $2.00 less went to interest. And throughout 360 months you're visiting that it's a real, large difference.
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This is the interest and principal 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 notice, this is the precise, this is precisely our home loan payment, this $2,129. Now, on that really 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 down the principal, the real loan amount.
Most 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 say if we head out here, this is month 198, there, that last month there was less interest so more of my $2,100 actually goes to pay off the loan.
Now, the last thing I wish to discuss in this video without making it too long is this idea of a interest tax deduction (how do buy to rent mortgages work). So, a lot of times you'll hear financial planners or realtors tell you, hey, the advantage of buying your home is that it, it's, it has tax benefits, and it does.
Your interest, not your entire payment. Your interest is tax deductible, deductible. And I want to be really clear with what deductible ways. So, let's for instance, talk about the interest charges. So, this whole time over 30 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 even more and even more monthly I get a smaller sized and smaller sized tax-deductible portion of my actual home mortgage payment. Out here the tax deduction is in fact very small. As I'm preparing to pay off my entire mortgage and get the title of my home.
This does not imply, 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 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 do assumable mortgages work.
And, but let's state $10,000 went to interest. To say 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 say I was http://codyhoxp064.xtgem.com/h1%20styleclearboth%20idcontentsection0some%20ideas%20on%20mortgages%20how%20do%20they%20work%20you%20should%20knowh1 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. 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 typically 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, instead of saying, I made $100,000 I state that I made $90,000 because I was able to deduct 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 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 basically conserved $3,500. I did not save $10,000. So, another way to consider 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 might really take straight from your taxes, that's called a tax credit - explain how mortgages work. So, if you were, uh, if there was some unique thing that you might really subtract it directly from your credit, from your taxes, that's a tax credit, tax credit.
Therefore, in this spreadsheet I simply want to show you that I really calculated 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 presumptions, 35 percent of $1,700.
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So, roughly over the course of the very first year I'm going to save about $7,000 in taxes, so that's absolutely nothing, absolutely nothing to sneeze at. Anyhow, hopefully you discovered this useful and I motivate you to go to that spreadsheet and, uh, play with the assumptions, just the presumptions in this brown color unless you actually understand what you're finishing with the spreadsheet.
What I want to do with this video is discuss what a home loan is however I believe many of us have a least a basic sense of it. But even better than that really go into the numbers and understand a bit of what you are really doing when you're paying a mortgage, what it's comprised of and just how much of it is interest versus just how much of it is actually paying for the loan - westlake las vegas resort how do 2nd mortgages work.