So, now prior to 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 hero, I'm not going to default on my home mortgage so I make that first 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 started 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 precisely $410. Now, you're probably 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 really, in the beginning, your payment, your $2,000 payment is primarily interest. Just $410 of it is principal. However as you, and after that you, and after that, so as your loan balance decreases 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 brand-new prepayment balance. I pay my home mortgage again. This is my brand-new loan balance. And notification, currently by month two, $2.00 more went to principal and $2.00 less went to interest. And over the course of 360 months you're visiting that it's an actual, large difference.
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This is the interest and primary portions 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 entire height, if you notice, this is the specific, 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 in fact pay for the principal, http://dallasplfd305.xtgem.com/h1%20styleclearboth%20idcontentsection0the%20basic%20principles%20of%20how%20do%20reverse%20mortgages%20really%20work%20h1 the real loan quantity.
Most of it opted for 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 say if we head 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 desire to speak about in this video without making it too long is this concept of a interest tax deduction (how do commercial mortgages work). So, a lot of times you'll hear financial coordinators or real estate agents inform you, hey, the advantage of purchasing your house is that it, it's, it has tax benefits, and it does.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I desire to be really clear with what deductible means. So, let's for example, speak about 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.
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That $1,700 is tax-deductible. Now, as we go further and further monthly I get a smaller sized and smaller tax-deductible part of my actual home loan payment. Out here the tax deduction is actually extremely small. As I'm preparing to pay off my entire home mortgage and get the title of my house.
This doesn't mean, let's say that, let's say in one year, let's state in one year I paid, I don't understand, 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 making $100,000 a year and let's say 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 just a rough quote. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not mean 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 IRS just how much did I make this year, instead of saying, I made $100,000 I state that I made $90,000 since I had the ability to deduct this, not straight 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 saved $3,500. I did not conserve $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 save 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 might in fact take directly from your taxes, that's called a tax credit - how do mortgages work in canada. So, if you were, uh, if there was some unique 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 just wish to reveal you that I actually computed because month how much of a tax reduction do you get. So, for instance, just off of the very 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.
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So, approximately 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. Anyway, hopefully you discovered this practical and I motivate 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 making with the spreadsheet.
What I desire to do Find more information with this video is discuss what a mortgage is however I believe the majority of us have a least a basic sense of it. However even better than that in fact go into the numbers and comprehend a little bit of what you are actually doing when you're paying a home loan, what it's comprised of and how much of it is interest versus just how much of it is in fact paying for the loan - how does chapter 13 work with mortgages.