Table of ContentsNot known Details About How To Calculate How Much Extra Principal Payments On Mortgages Not known Details About How Do Reverse Mortgages Really Work The Basic Principles Of How Do Banks Make Money On Reverse Mortgages Facts About What Is The Interest Rate On Reverse Mortgages Revealed
Now, what I have actually done here is, well, in fact prior to I get to the chart, let me actually reveal you how I compute the chart and I do this throughout 30 years and it goes by month. So, so you can think of that there's actually 360 rows here on the actual spreadsheet and you'll see that if you go and open it up. what are mortgages.
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 have not made any mortgage 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 hero, I'm not going to default on my home mortgage so I make that very first home loan payment that we computed, 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 very first payment I now have $125,410 in equity. So, my equity has actually gone up 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 only went up by $410,000.
So, that extremely, in the start, your payment, your $2,000 payment is primarily interest. Only $410 of it is primary. But 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 brand-new prepayment balance. I pay my mortgage again. This is my brand-new loan balance. And notice, already by month 2, $2.00 more went to principal and $2.00 less went to interest. And throughout 360 months you're going to see that it's a real, sizable distinction.
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This is the interest and primary portions of our home mortgage payment. So, this entire height right here, this is, let me scroll down a little bit, this is by month. So, this whole height, if you discover, this is the precise, this is exactly our mortgage payment, this $2,129 (what are points in mortgages). Now, on that very first month you saw that of my $2,100 just $400 of it, this is the $400, only $400 of it went to in fact pay for the principal, the actual loan quantity.
Many of it went for the interest of the month. However 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 state if we go out here, this is month 198, over there, that last month there was less interest so more of my $2,100 in fact 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 monetary coordinators or realtors inform you, hey, the benefit of purchasing your home is that it, it's, it has tax benefits, and it does. how do reverse mortgages work.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I desire to be extremely clear with what deductible means. So, let's for example, speak about the interest costs. So, this entire time over 30 years I am paying $2,100 a month or $2,129.29 a month. Now, at the starting a great deal 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 mortgage payment. Out here the tax deduction is actually really little. As I'm preparing yourself to pay off my entire home loan and get the title of my house.
This doesn't imply, let's say that, let's say in one year, let's say in one year I paid, I do not understand, 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, but let's say $10,000 went to interest. To state this deductible, and let's say prior to 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 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. Simply, this is simply a rough quote. Now, when you state that $10,000 is tax-deductible, the interest is tax-deductible, that does not imply that I can simply take it from the $35,000 that I would have generally owed and just paid $25,000.
So, when I tell the Internal Revenue Service how much did I make this year, instead of stating, I made $100,000 I state that I made $90,000 due to the fact that I had the ability to deduct this, not directly from my taxes, I had the ability to deduct it from my income. So, now if I only made $90,000 and I, and this is I'm doing a gross oversimplification of how taxes really get calculated.
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 conserved $3,500. I did not conserve $10,000. So, another method 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 save 35 percent of this in real taxes.
You're subtracting it from the income that you report to the IRS. If there's something that you might really take directly from your taxes, that's called a tax credit. So, if you were, uh, if there was some unique thing that you could in fact subtract it straight from your credit, from your taxes, that's a tax credit, tax credit.
Therefore, in this spreadsheet I simply wish to reveal you that I really determined in that month how much of a tax deduction do you get. So, for example, simply 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 assumptions, 35 percent of $1,700 - what is the current interest rate for commercial 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, absolutely nothing to sneeze at. Anyhow, hopefully you found this helpful and I motivate you to go to that spreadsheet and, uh, have fun with the assumptions, just the presumptions in this brown color unless you really know what you're doing with the spreadsheet.