Table of Contents4 Simple Techniques For How Do 2nd Mortgages WorkAn Unbiased View of Reverse Mortgages How They WorkThe Best Strategy To Use For What Is The Interest Rate On Reverse MortgagesLittle Known Questions About What Type Of Interest Is Calculated On Home Mortgages.
Now, what I've done here is, well, really before I get to the chart, let me really show you how I calculate the chart and I do this throughout 30 years and it passes month. So, so you can think of 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 zero, which I do not reveal here, you obtained $375,000. Now, over the course of 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 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 an excellent man, 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, 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 actually increased by exactly $410. Now, you're most likely stating, hi, gee, I made a $2,000 payment, a roughly 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. Only $410 of it is primary. However as you, and after that you, and then, so as your loan balance decreases 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 home loan once again. This is my new loan balance. And notice, already by month two, $2.00 more went to primary and $2.00 less went to interest. And throughout 360 months you're going to see that it's a real, sizable 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 bit, this is by month. So, this entire height, if you observe, this is the specific, this is exactly our mortgage payment, this $2,129 (how many mortgages can you have). 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 http://louisthka851.image-perth.org/10-simple-techniques-for-how-to-invest-in-mortgages pay down the principal, the actual loan amount.
Many of it went for the interest of the month. But as I start paying down 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 much better color than that. There is less interest, let's state if we head 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 talk View website about in this video without making it too long is this idea of a interest tax reduction. So, a lot of times you'll hear monetary organizers or realtors tell you, hey, the benefit of buying your house is that it, it's, it has tax advantages, and it does. why do banks sell mortgages.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I want to be really clear with what deductible means. So, let's for circumstances, discuss the interest costs. So, this whole time over 30 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 every month I get a smaller sized and smaller tax-deductible part of my real home mortgage payment. Out here the tax deduction is in fact really little. As I'm getting all set to pay off my whole 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 make up 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, but let's say $10,000 went to interest. To state this deductible, and let's state prior to this, let's state before 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 say I was paying approximately 35 percent on that $100,000.
Let's say, 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 suggest that I can just take it from the $35,000 that I would have usually owed and only paid $25,000.
So, when I tell the IRS how much did I make this year, instead of stating, I made $100,000 I say that I made $90,000 because I was able to subtract this, not straight from my taxes, I had the ability 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 determined.
Let's get the calculator. So, 90 times.35 amounts to $31,500. So, this will amount 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 conserve $10,000. So, another way 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 conserve 35 percent of 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 straight from your taxes, that's called a tax credit. So, if you were, uh, if there was some special thing that you might actually deduct it straight from your credit, from your taxes, that's a tax credit, tax credit.
Therefore, in this spreadsheet I simply want to show you that I really determined 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 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 to sell mortgages.
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So, roughly over the course of the first year I'm going to save about $7,000 in taxes, so that's nothing, nothing to sneeze at. Anyhow, ideally you found this helpful and I motivate you to go to that spreadsheet and, uh, play with the presumptions, just the presumptions in this brown color unless you truly know what you're making with the spreadsheet.