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 a hero, I'm not going to default on my mortgage so I make that first home 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, 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 stating, hi, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity only went up by $410,000.
So, that very, in the beginning, your payment, your $2,000 payment is mostly interest. Only $410 of it is primary. But as you, and then 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 mortgage once again. This is my new loan balance. And notice, currently by month 2, $2.00 more went to principal and $2.00 less went to interest. And throughout 360 months you're visiting that it's an actual, sizable difference.
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This is the interest and principal portions of our mortgage 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 notice, this is the specific, this is precisely our home mortgage payment, this $2,129. Now, on that extremely 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 real loan amount.
The majority of it went for the interest of the month. But as I start paying for the loan, as the loan balance gets smaller and smaller, 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 head out here, this is month 198, over there, that last month there was less interest so more of my $2,100 actually goes to pay off the loan.
Now, the last thing I wish to talk about in this video without making it too long is this idea of a interest tax reduction (how do reverse mortgages work in florida). So, a great deal of times you'll hear monetary planners or realtors tell you, hey, the benefit of buying your house is that it, it's, it has tax advantages, and it does.
Your interest, not your entire payment. Your interest is tax deductible, deductible. And I wish to be very clear with what deductible ways. 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 starting a lot of that is interest.
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That $1,700 is tax-deductible. Now, as we go further and even more every month I get a smaller and smaller tax-deductible part of my actual home loan payment. Out here the tax reduction is really really small. As I'm preparing to settle my whole mortgage and get the title of Learn more my home.
This doesn't suggest, let's say that, let's say in one year, let's state in one year I paid, I do not understand, I'm going to make up a number, I didn't determine 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 variable mortgages work in canada.
And, however let's state $10,000 went to interest. To state this deductible, and let's when does chuck learn to fight state before this, let's say 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 state I was paying approximately 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 be about $35,000 in taxes for that year. Simply, this is just a rough price quote. Now, when you say 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 typically owed and only paid $25,000.
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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 deduct this, not straight from my taxes, I had the ability to deduct it from my income. So, now if I just made $90,000 and I, and this is I'm doing a gross oversimplification of how taxes actually get determined.
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 reduction, $10,000 of deductible interest, I basically conserved $3,500. I did not save $10,000. So, another way 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 conserve 35 percent of this in actual taxes.
You're deducting it from the income that you report to the Internal Revenue Service. If there's something that you might really take straight from your taxes, that's called a tax credit - how do reverse mortgages work in florida. So, if you were, uh, if there was some special thing that you might in fact subtract it straight from your credit, from your taxes, that's a tax credit, tax credit.
Therefore, in this spreadsheet I simply desire to show you that I in fact determined because month how much of a tax deduction do you get. So, for example, simply off of the 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 assumptions, 35 percent of $1,700.
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So, approximately throughout the very first year I'm going to conserve about $7,000 in taxes, so that's nothing, absolutely nothing to sneeze at. Anyway, hopefully you found this handy and I encourage you to go to that spreadsheet and, uh, play with the assumptions, only the presumptions in this brown color unless you actually know what you're making with the spreadsheet.
What I desire to make with this video is discuss what a home mortgage is but I believe the majority of us have a least a basic sense of it. But even much better than that in fact enter into the numbers and comprehend a bit of what you are really 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 actually paying down the loan - how do reverse mortgages work in florida.