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Now, what I have actually done here is, well, actually before I get to the chart, let me actually reveal you how I determine the chart and I do this throughout thirty years and it goes by month. So, so you can think of that there's really 360 rows here on the real spreadsheet and you'll see that if you go and open it up. how much can i borrow mortgages.
So, on month no, which I don't show 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, rather of owing $375,000 at the end of the first month I owe $376,718. Now, I'm a good guy, I'm not going to default on my mortgage so I make that very first home mortgage payment that we computed, that we computed right over here.
Now, this right here, what I, little asterisk here, this is my equity now. So, keep in mind, 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 increased by precisely $410. Now, you're most likely saying, hi, gee, I made a $2,000 payment, an approximately 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 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 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 once again. This is my new loan balance. And notification, already by month 2, $2.00 more went to primary and $2.00 less went to interest. And over the course of 360 months you're visiting that it's a real, sizable difference.
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This is the interest and principal portions of our mortgage payment. So, this entire height right here, this is, let me scroll down a little bit, this is by month. here So, this entire height, if you observe, this is the precise, this is exactly our home mortgage payment, this $2,129 (what are mortgages interest rates today). Now, on that really first month you saw that of my $2,100 just $400 of it, this is the $400, just $400 of it went to in fact pay for the principal, the actual loan quantity.
Many https://blogfreely.net/repriafj7c/b-table-of-contents-b-a-22hd of it chose the interest of the month. But as I start paying for the loan, as the loan balance gets smaller sized 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 go out here, this is month 198, there, that last month there was less interest so more of my $2,100 really goes to pay off the loan.
Now, the last thing I want to discuss in this video without making it too long is this concept of a interest tax deduction. So, a lot of times you'll hear financial organizers or real estate agents inform you, hey, the benefit of purchasing your house is that it, it's, it has tax benefits, and it does. non-federal or chartered banks who broker or lend for mortgages must be registered with.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I wish to be really clear with what deductible methods. 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 further monthly I get a smaller sized and smaller tax-deductible portion of my real mortgage payment. Out here the tax reduction is really really small. As I'm getting ready to pay off my entire home mortgage and get the title of my house.
This doesn't mean, let's say that, let's state 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 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 state $10,000 went to interest. To state this deductible, and let's say 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. Just, this is simply a rough quote. Now, when you say 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 saying, I made $100,000 I state that I made $90,000 because I had the ability to subtract this, not directly 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 really 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 reduction, $10,000 of deductible interest, I basically 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 save 35 percent of this in actual taxes.
You're subtracting it from the income that you report to the IRS. If there's something that you might actually 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 actually subtract it straight from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I simply wish to reveal you that I in fact calculated in that month how much of a tax reduction 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 presumptions, 35 percent of $1,700 - how long are mortgages.
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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, nothing to sneeze at. Anyhow, hopefully you discovered this useful and I encourage you to go to that spreadsheet and, uh, have fun with the presumptions, just the assumptions in this brown color unless you truly know what you're making with the spreadsheet.