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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 calculated, that we calculated right over here.

Now, this right here, what I, little asterisk https://www.evernote.com/shard/s532/sh/71639036-6604-ce54-7176-d9a14b1fce46/1436d8f0e4e23dffa9e2cc6d20aa277e here, this is my equity now. So, remember, 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 gone up by precisely $410. Now, you're probably stating, hi, 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 start, your payment, your $2,000 payment is primarily interest. Only $410 of it is principal. 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 notification, 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 distinction.

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This is the interest and principal portions of our home loan payment. So, this whole height right here, this is, let me scroll down a bit, this is by month. So, this entire height, if you notice, this is the exact, this is exactly our mortgage payment, this $2,129. Now, on that extremely first month you saw that of my $2,100 only $400 of it, this is the $400, just $400 of it went to actually pay down the principal, the actual loan quantity.

Many of it opted for the interest of the month. However as I begin paying down 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 better color than that. There is less interest, let's say if we head 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 wish to discuss in this video without making it too long is this idea of a interest tax deduction (how do variable mortgages work in canada). So, a lot of times you'll hear financial organizers or realtors inform you, hey, the benefit of buying your home is that it, it's, it has tax benefits, and it does.

Your interest, not your whole payment. Your interest american express timeshare is tax deductible, deductible. And I want to be extremely clear with what deductible ways. So, let's for example, speak about 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 even more and further every month I get a smaller and smaller tax-deductible portion of my real home mortgage payment. Out here the tax reduction is actually extremely small. As I'm preparing to settle my whole home loan and get the title of my house.

This doesn't suggest, let's say that, let's say in one year, let's say in one year I paid, I don't understand, I'm going to comprise a number, I didn't calculate it on the spreadsheet. Let's state in year one, year one, I pay, I pay $10,000 in interest, $10,000 in interest. reverse mortgages how do they work.

And, but let's state $10,000 went to interest. To state this deductible, and let's say before this, let's state prior to 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 roughly 35 percent on that $100,000.

Let's say, you know, if I didn't have this mortgage I would pay 35 percent taxes which would have to do with $35,000 in taxes for that year. Just, this is simply a rough price quote. Now, when you state 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 just paid $25,000.

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So, when I tell the IRS how much did I make this year, instead of stating, I made $100,000 I say that I made $90,000 due to the fact that I was able to subtract this, not straight from my taxes, I had the ability to subtract it from my earnings. So, now if I just made $90,000 and I, and this is I'm doing a gross oversimplification of how taxes in fact get determined.

Let's get the calculator. So, 90 times.35 is equal 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 saved $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 conserve 35 percent of this in real taxes.

You're subtracting it from the earnings that you report to the Internal Revenue Service. If there's something that you could really take directly from your taxes, that's called a tax credit - how do mortgages work. So, if you were, uh, if there was some unique thing that you might in fact subtract it directly from your credit, from your taxes, that's a tax credit, tax credit.

And so, in this spreadsheet I just desire to reveal you that I actually determined in that month how much of a tax reduction do you get. So, for instance, simply 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 assumptions, 35 percent of $1,700.

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So, approximately throughout the first year I'm going to save about $7,000 in taxes, so that's nothing, nothing to sneeze at. Anyway, hopefully you discovered this handy and I encourage you to go to that spreadsheet and, uh, play with the presumptions, just the presumptions in this brown color unless you truly understand what you're finishing with the spreadsheet.

What I want to make with this video is explain what a home mortgage is but I think most of us have a least a basic sense of it. But even better than that really go into the numbers and understand a little bit of what you are in fact doing when you're paying a home loan, what it's made up of and how much of it is interest versus just how much of it is in fact paying for the loan - how do mortgages work in the us.