Table of ContentsThe Basic Principles Of What Are Mortgages Interest Rates Today Some Known Factual Statements About Reverse Mortgages How They Work All About How Much Do Mortgages CostHow To Calculate How Much Extra Principal Payments On Mortgages for Beginners
Now, what I've done here is, well, really before I get to the chart, let me in fact show you how I determine the chart and I do this throughout thirty years and it passes 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 reverse mortgages work.
So, on month zero, which I don't reveal here, you borrowed $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 mortgage payments yet.
So, now before 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 good man, I'm not going to default on my home mortgage so I make that very 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 gone up by precisely $410. Now, you're probably saying, hello, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity only went up by $410,000.
So, that very, in the start, your payment, your $2,000 payment is primarily interest. Only $410 of it is primary. However as you, and after that you, and then, 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 loan once again. This is my new loan balance. And notification, currently by month two, $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 http://marcobkkr921.huicopper.com/what-is-the-current-index-rate-for-mortgages-for-beginners 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 entire height, if you notice, this is the specific, this is exactly our home loan payment, this $2,129 (how to sell mortgages). 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 really pay for the principal, the real loan amount.
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 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 in fact 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. So, a lot of times you'll hear monetary organizers or realtors inform you, hey, the benefit of buying your home is that it, it's, it has tax benefits, and it does. reverse mortgages are most useful for elders who.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I desire to be extremely clear with what deductible methods. So, let's for instance, discuss 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 beginning a great deal of that is interest.
That $1,700 is tax-deductible. Now, as we go further and even more monthly I get a smaller and smaller tax-deductible portion of my real mortgage payment. Out here the tax reduction is actually extremely little. As I'm preparing to settle my entire home mortgage and get the title of my home.
This does not indicate, let's state that, let's state in one year, let's say in one year I paid, I do not 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.
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And, however let's say $10,000 went to interest. To state 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 state I was paying approximately cancel sirius 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 have to do with $35,000 in taxes for that year. Just, this is simply a rough estimate. Now, when you state that $10,000 is tax-deductible, the interest is tax-deductible, that does not indicate that I can just take it from the $35,000 that I would have generally owed and just paid $25,000.
So, when I tell the Internal Revenue Service just how much did I make this year, rather of stating, I made $100,000 I state that I made $90,000 due to the fact that I was able to subtract this, not directly from my taxes, I had the ability to deduct it from my earnings. 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 to $31,500, put a comma here, $31,500. So, off of a $10,000 deduction, $10,000 of deductible interest, I essentially 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 save 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 could in fact take directly from your taxes, that's called a tax credit. So, if you were, uh, if there was some special thing that you could really deduct it directly from your credit, from your taxes, that's a tax credit, tax credit.
Therefore, in this spreadsheet I just wish to show you that I actually calculated in that month just how much of a tax deduction do you get. So, for example, simply off of the very first month you paid $1,700 in interest of your $2,100 home loan payment. So, 35 percent of that, and I got the 35 percent as one of your assumptions, 35 percent of $1,700 - when to refinance mortgages.
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So, approximately over the course of the very first year I'm going to save about $7,000 in taxes, so that's nothing, absolutely nothing to sneeze at. Anyway, hopefully you discovered this valuable and I encourage you to go to that spreadsheet and, uh, have fun with the presumptions, only the presumptions in this brown color unless you truly understand what you're doing with the spreadsheet.