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Now, what I've done here is, well, in fact before I get to the chart, let me in fact reveal you how I compute the chart and I do this throughout thirty years and it passes month. So, so you can envision that there's in fact 360 rows here on the actual spreadsheet and you'll see that if you go and open it up. how many mortgages can you have.
So, on month zero, which I don't show 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 haven't made any home loan payments yet.
So, now prior to I pay any of my payments, instead of owing $375,000 at the end of the very first month I owe $376,718. Now, I'm an excellent person, I'm not going to default on my home loan so I make that very first mortgage payment that we calculated, that we calculated right over here.
Now, this right here, what I, little asterisk here, this is my equity now. So, keep in mind, I began 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 exactly $410. Now, you're probably saying, hey, 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. Only $410 of it is principal. However as you, and then 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 once again. This is my new loan balance. And notice, 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 how to get out of timeshare it's a real, substantial 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 little bit, this is by month. So, this entire height, if you see, this is the specific, this is exactly our mortgage payment, this $2,129 (how much can i borrow 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 down the principal, the real loan amount.
Most 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, 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 http://jaredxmza292.jigsy.com/entries/general/things-about-non-federal-or-chartered-banks-who-broker-or-lend-for-mortgages-must-be-registered-with there was less interest so more of my $2,100 really goes to settle the loan.
Now, the last thing I want to talk about in this video without making it too long is this concept of a interest tax reduction. So, a lot of times you'll hear financial coordinators or realtors tell you, hey, the advantage of purchasing your home is that it, it's, it has tax advantages, and it does. what is the current interest rate for mortgages.
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 lot of that is interest.
That $1,700 is tax-deductible. Now, as we go even more and further each month I get a smaller and smaller sized tax-deductible part of my actual home loan payment. Out here the tax deduction is in fact really small. As I'm getting all set to settle my whole home mortgage and get the title of my house.
This does not indicate, let's state that, let's say 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 say 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 roughly 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 be about $35,000 in taxes for that year. Simply, this is simply a rough estimate. Now, when you state that $10,000 is tax-deductible, the interest is tax-deductible, that does not suggest that I can simply take it from the $35,000 that I would have usually owed and just paid $25,000.
So, when I tell the IRS just how much did I make this year, rather of stating, I made $100,000 I say that I made $90,000 since I had the ability to subtract this, not directly 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 actually get calculated.
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 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 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 straight from your taxes, that's called a tax credit. So, if you were, uh, if there was some unique thing that you might really subtract it directly from your credit, from your taxes, that's a tax credit, tax credit.
Therefore, in this spreadsheet I simply desire to reveal you that I really computed because month 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 loan payment. So, 35 percent of that, and I got the 35 percent as one of your presumptions, 35 percent of $1,700 - when to refinance mortgages.
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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. Anyway, ideally you found this practical and I motivate you to go to that spreadsheet and, uh, have fun with the assumptions, just the assumptions in this brown color unless you truly know what you're making with the spreadsheet.