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 a hero, I'm not going to default on my home mortgage so I make that first home mortgage payment that we determined, that we calculated right over here.
Now, this right here, what I, little asterisk here, this is my equity now. So, remember, 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 increased by exactly $410. Now, you're most likely stating, hey, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity only increased by $410,000.
So, that really, in the start, your payment, your $2,000 payment is primarily interest. Just $410 of it is primary. However as you, and after that you, and after that, so as your loan balance goes down 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 home mortgage again. This is my brand-new loan balance. And notice, currently 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 an actual, substantial difference.
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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 down a little bit, this is by month. So, this entire height, if you notice, this is the precise, this is exactly 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, only $400 of it went to really pay down the principal, the real 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 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, there, that last month there was less interest so more of my $2,100 in fact goes to pay off the loan.
Now, the last thing I wish to talk about in this video without making it too long is this concept of a interest tax deduction (buy to let mortgages how do they work). So, a lot of times you'll hear monetary coordinators or real estate agents inform you, hey, the advantage of buying your house is that it, it's, it has tax advantages, and it does.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I wish to be very clear with what deductible methods. So, let's for example, speak 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 great deal 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 tax-deductible part of my real home loan payment. Out here the tax reduction is really very little. As I'm getting all set to settle my whole home loan and get the title of my home.
This doesn't imply, let's say 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 compute it on the spreadsheet. Let's state in year one, year one, I pay, I pay $10,000 in interest, $10,000 in interest. how do down payments work on mortgages.
And, however let's state $10,000 went to interest. To state this deductible, and let's say before 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 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 have to do with $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 indicate that I can simply take it from the $35,000 that I would have normally owed and only paid $25,000.
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So, when I inform the IRS just how much did I make this year, instead of stating, I made $100,000 I say that I made $90,000 because I had http://andersonwlgo442.bearsfanteamshop.com/h1-style-clear-both-id-content-section-0-how-how-do-2nd-mortgages-work-can-save-you-time-stress-and-money-h1 the ability to deduct this, not directly from my taxes, I was able 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 determined.
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 essentially saved $3,500. I did not save $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 save 35 percent of wesley financial group reviews this in actual taxes.
You're subtracting it from the earnings that you report to the IRS. If there's something that you could actually take directly from your taxes, that's called a tax credit - how do fixed rate mortgages work. So, if you were, uh, if there was some special thing that you could actually subtract it directly from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I just wish to show you that I actually determined in that month how much of a tax deduction do you get. So, for example, simply 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 very first year I'm going to conserve about $7,000 in taxes, so that's absolutely nothing, absolutely nothing to sneeze at. Anyhow, hopefully you found this valuable and I motivate you to go to that spreadsheet and, uh, have fun with the presumptions, just the assumptions in this brown color unless you really know what you're making with the spreadsheet.
What I want to do with this video is discuss what a home loan is however I believe the majority of us have a least a general sense of it. But even much better than that really enter into the numbers and understand a little bit of what you are really doing when you're paying a home mortgage, what it's made up of and just how much of it is interest versus how much of it is in fact paying for the loan - how does chapter 13 work with mortgages.