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Now, what I have actually done here is, well, really before https://meleenyrxo.doodlekit.com/blog/entry/10491877/h1-styleclearboth-idcontentsection0how-to-mortgages-things-to-know-before-you-buyh1 I get to the chart, let me really reveal you how I compute the chart and I do this over the course of 30 years and it goes by month. So, so you can picture that there's in fact 360 rows here on the real spreadsheet and you'll see that if you go and open it up. how do second mortgages work.
So, on month absolutely no, which I do not reveal here, you borrowed $375,000. Now, over the course of that month they're going to charge you 0.46 percent interest, bear in mind 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 home loan payments yet.
So, now before I pay any of my payments, instead of owing $375,000 at the end of the first month I owe $376,718. Now, I'm a good person, I'm not going to default on my home mortgage so I make that very first home loan payment that we determined, that we determined 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 first payment I now have $125,410 in equity. So, my equity has actually gone up by precisely $410. Now, you're probably saying, hey, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity just went up by $410,000.
So, that extremely, in the beginning, your payment, your $2,000 payment is primarily interest. Only $410 of it the timeshare group is principal. 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 new prepayment balance. I pay my mortgage again. This is my brand-new loan balance. And notification, already 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, substantial distinction.
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This is the interest and principal parts of our home loan payment. So, this whole height right here, this is, let me scroll down a bit, this is by month. So, this whole height, if you see, this is the precise, this is exactly our home loan payment, this $2,129 (what is the current interest rate for 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 actually pay for the principal, the actual loan quantity.
The majority of it went for the interest of the month. But as I begin paying for the loan, as the loan balance gets smaller sized 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 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 coordinators or realtors inform you, hey, the advantage of buying your house is that it, it's, it has tax advantages, and it does. what are subprime mortgages.
Your interest, not your entire payment. Your interest is tax deductible, deductible. And I wish to be extremely clear with what deductible ways. So, let's for circumstances, speak about the interest costs. So, this entire 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 even more and even more each month I get a smaller and smaller sized tax-deductible portion of my real mortgage payment. Out here the tax reduction is really very small. As I'm preparing to pay off my entire home mortgage and get the title of my home.
This doesn't mean, let's state that, let's say in one year, let's say 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 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 state this deductible, and let's say before this, let's state before 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 say, you understand, 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 quote. Now, when you state 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 inform the IRS just how much did I make this year, instead of stating, I made $100,000 I state that I made $90,000 because I had the ability to deduct this, not straight from my taxes, I was able to subtract 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 calculated.
Let's get the calculator. So, 90 times.35 amounts to $31,500. So, this will be equivalent 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 save $10,000. So, another way 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 actual taxes.
You're deducting 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. So, if you were, uh, if there was some special thing that you might really subtract it straight from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I just desire to reveal you that I in fact computed in that month just how much of a tax deduction do you get. So, for example, 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 - what is a fixed rate mortgages.
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So, roughly throughout the first year I'm going to save about $7,000 in taxes, so that's absolutely nothing, nothing to sneeze at. Anyhow, ideally you found this helpful and I encourage you to go to that spreadsheet and, uh, have fun with the assumptions, just the presumptions in this brown color unless you truly know what you're finishing with the spreadsheet.