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Now, what I have actually done here is, well, in fact prior to I get to the chart, let me really show you how I compute the chart and I do this over the course of thirty years and it goes by month. So, so you can envision that there's actually 360 rows here on the actual spreadsheet and you'll see that if you go and open it up. how many mortgages can i have.
So, on month zero, which I do not show here, you obtained $375,000. Now, throughout that month they're going to charge you 0.46 percent interest, remember 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 before 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 hero, I'm not going to default on my mortgage so I make that 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, keep in mind, I started 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 saying, hello, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity just went up by $410,000.
So, that really, in the beginning, your payment, your $2,000 payment is mainly interest. Just $410 of it is primary. However as you, and then you, and then, 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 loan once again. This is my brand-new loan balance. And notice, currently 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 visiting that it's a real, large distinction.
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This is the interest and principal portions of our home loan payment. So, this whole height right here, this is, let me scroll Have a peek here down a bit, this is by month. So, this whole height, if you see, this is the exact, this is precisely our home loan payment, this $2,129 (reverse mortgages are most useful for elders who). Now, on that extremely 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 for the principal, the actual loan amount.
The majority of it chose the interest of the month. However as I begin 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 much better color than that. There is less interest, let's state 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 speak about in this video without making it too long is this concept of a interest tax reduction. So, a lot of times you'll hear financial planners or real estate agents inform you, hey, the benefit of buying your home is that it, it's, it has tax benefits, and it does. how much can i borrow mortgages.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I want to be extremely clear with what deductible means. So, let's for instance, discuss 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 lot of that is interest.
That $1,700 is tax-deductible. Now, as we go further and further each month I get a smaller sized and smaller tax-deductible portion of my real home mortgage payment. Out here the tax deduction is in fact really little. As I'm preparing to settle my entire home loan and get the title of my house.
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 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.
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And, but let's say $10,000 went to interest. To say this deductible, and let's say prior to this, let's say prior to 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 understand, 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. Simply, 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 suggest that I can just take it from the $35,000 that I would have normally owed and just paid $25,000.
So, when I tell the IRS how much did I make this year, rather of stating, I made $100,000 I say that I made $90,000 because I had the ability to deduct this, not straight from my taxes, I had the ability to subtract 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 in fact get computed.
Let's get the calculator. So, 90 times.35 amounts to $31,500. So, this will be equal https://postheaven.net/sulannt0gx/b-table-of-contents-b-a-2bxg 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 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 real taxes.
You're deducting 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. So, if you were, uh, if there was some special thing that you might in fact subtract it straight from your credit, from your taxes, that's a tax credit, tax credit.
Therefore, in this spreadsheet I simply wish to reveal you that I really calculated in that 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 mortgage payment. So, 35 percent of that, and I got the 35 percent as one of your presumptions, 35 percent of $1,700 - how reverse mortgages work.
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So, approximately throughout the first year I'm going to conserve about $7,000 in taxes, so that's nothing, absolutely nothing to sneeze at. Anyhow, hopefully you discovered this useful and I encourage you to go to that spreadsheet and, uh, play with the presumptions, only the assumptions in this brown color unless you actually know what you're doing with the spreadsheet.