Table of ContentsWhat Is The Current Interest Rate On Mortgages - Questions10 Easy Facts About What Are Interest Rates For Mortgages ShownThe Basic Principles Of What Are Current Interest Rates On Mortgages The 3-Minute Rule for How To Calculate Home Mortgages
Now, what I've done here is, well, in fact before I get to the chart, let me really show you how I calculate the chart and I do this throughout thirty years and it goes by month. So, so you can envision 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 many mortgages can i have.
So, on month zero, which I don't show here, you borrowed $375,000. Now, throughout 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 mortgage payments yet.
So, now before 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 a great guy, I'm not going to default on my home loan so I make that very first mortgage 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, remember, 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 increased by exactly $410. Now, you're most likely saying, 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 primarily interest. Just $410 of it is primary. However 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 new prepayment balance. I pay my home mortgage once again. This is my brand-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, large difference.
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This is the interest and primary parts 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 precise, this is precisely our home loan payment, this $2,129 (which fico score is used for mortgages). 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 really pay down the principal, the actual loan quantity.
The majority of it opted for the interest of the month. But as I begin 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 much 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 actually goes to pay off the loan.
Now, the last thing I wish to speak 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 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. why are reverse mortgages bad.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I desire to be really clear with what deductible means. So, let's for circumstances, talk 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 beginning a great deal of that is interest.
That $1,700 is tax-deductible. Now, as we go further and further every month I get a smaller and smaller tax-deductible part of my actual mortgage payment. Out here the tax deduction is really very small. As I'm getting all set to pay off my whole home mortgage and get the title of my house.
This does not indicate, let's state that, let's state in one year, let's say in one year I paid, I don't know, 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, however let's state $10,000 went to interest. To say 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 say 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 know, if I didn't have this home mortgage I would pay 35 percent taxes which would have to do with $35,000 in taxes for that year. Just, this is just a rough 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 generally owed and only paid $25,000.
So, erin gaynor when I tell the IRS how much did I make this year, rather of stating, I made $100,000 I state that I made $90,000 since I had the ability to subtract this, not directly from my taxes, I was able to subtract 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 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 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 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 could in fact take straight from your taxes, that's called a tax credit. So, if you were, uh, if there was some special thing that you could https://diigo.com/0ichmu in fact subtract it straight from your credit, from your taxes, that's a tax credit, tax credit.
And so, in this spreadsheet I just wish to show you that I actually calculated because month just how much of a tax reduction do you get. So, for example, just off of the 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 - which fico score is used for mortgages.
The Of How Mortgages Interest Is Calculated
So, roughly throughout the first year I'm going to save about $7,000 in taxes, so that's absolutely nothing, absolutely nothing to sneeze at. Anyhow, ideally you discovered this useful and I motivate you to go to that spreadsheet and, uh, play with the presumptions, only the assumptions in this brown color unless you actually know what you're making with the spreadsheet.