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Now, what I have actually done here is, well, really prior to I get to the chart, let me in fact reveal you how I determine the chart and I do this throughout thirty years and it goes by month. So, so you can imagine that there's really 360 rows here on the actual spreadsheet and you'll see that if you go and open it up. what are reverse mortgages.
So, on month no, which I do not reveal here, you obtained $375,000. Now, throughout 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 have not made any home loan payments yet.
So, now prior to I pay any of my payments, instead of owing $375,000 at the end of the very first month I owe $376,718. Now, I'm a good man, I'm not going to default on my home mortgage 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 precisely $410. Now, you're most likely stating, hello, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity only increased by $410,000.
So, that extremely, in the beginning, your payment, your $2,000 payment is mostly interest. Only $410 of it is principal. But as you, and after that 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 home mortgage once again. This is my brand-new loan balance. And notification, already by month 2, $2.00 more went to principal and $2.00 less went to weslin financial interest. And over the course of 360 months you're going to see that it's an actual, substantial distinction.
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This is the interest and primary portions of our mortgage payment. So, this entire height right here, this is, let me scroll down a bit, this is by month. So, this entire height, if you observe, this is the precise, this is exactly our home mortgage payment, this $2,129 (which fico score is used for mortgages). 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 in fact pay down the principal, the actual loan quantity.
The majority of it went for the interest of the month. However as I start paying down the loan, as the loan balance gets smaller 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 really goes to settle the loan.
Now, the last thing I want to talk about in this video without making it too long is this concept of a interest tax deduction. So, a lot of times you'll hear financial planners or realtors inform you, hey, the advantage of buying your home is that it, it's, it has tax advantages, and it does. non-federal or chartered banks who broker or lend for mortgages must be registered with.
Your interest, not your entire payment. Your interest is tax deductible, deductible. And I wish to be very clear with what deductible means. So, let's for example, speak about the interest costs. So, this entire time over 30 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 even more and further each month I get a smaller and smaller tax-deductible portion of my actual mortgage payment. Out here the tax reduction is actually very little. As I'm getting ready to settle my whole mortgage 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 don't know, I'm going to make up 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, however let's state $10,000 went to interest. To say this deductible, and let's state before this, let's say 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 say I was paying http://emilianofhzr441.theglensecret.com/the-basic-principles-of-how-did-subprime-mortgages-contributed-to-the-financial-crisis roughly 35 percent on that $100,000.
Let's state, you know, if I didn't have this home loan I would pay 35 percent taxes which would be about $35,000 in taxes for that year. Simply, this is just a rough estimate. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not suggest that I can just take it from the $35,000 that I would have usually owed and just paid $25,000.
So, when I tell the Internal Revenue Service just how much did I make this year, instead of stating, I made $100,000 I state that I made $90,000 due to the fact that I was able to deduct this, not directly from my taxes, I was able to deduct 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 in fact get computed.
Let's get the calculator. So, 90 times.35 amounts 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 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 conserve 35 percent of this in real taxes.
You're subtracting it from the earnings that you report to the IRS. If there's something that you could in fact take straight from your taxes, that's called a tax credit. So, if you were, uh, if there was some special thing that you could actually deduct it directly from your credit, from your taxes, that's a tax credit, tax credit.
Therefore, in this spreadsheet I simply want to reveal you that I really computed because month how much of a tax deduction do you get. So, for instance, just 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 - why do banks sell mortgages.
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So, roughly over the course of the first year I'm going to save about $7,000 in taxes, so that's absolutely nothing, 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, just the assumptions in this brown color unless you actually know what you're doing with the spreadsheet.