But you might not presume it's constant and have fun with the spreadsheet a bit. However I, what I would, I'm introducing this due to the fact that as we pay for the financial obligation this number is going to get smaller sized. So, this number is getting smaller, let's say at some point this is just $300,000, then Click for more info my equity is going to get larger.
Now, what I have actually done here is, well, really before I get to the chart, let me really show you how I compute the chart and I do this throughout 30 years and it passes month. So, so you can picture that there's in fact 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
So, on month no, which I do not reveal here, you borrowed $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 haven't made any home mortgage payments yet.
So, now prior to I pay any of my payments, instead of owing $375,000 at the end of the first month I owe $376,718. Now, I'm an excellent person, I'm not going to default on my home mortgage so I make that first 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 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 increased by exactly $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 start, your payment, your $2,000 payment is mainly interest. Just $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 and so 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 again. This is my brand-new loan balance. And notification, currently by month two, $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 an actual, substantial difference.
This is the interest and principal parts of our home mortgage payment. So, this entire height right here, this is, let me scroll down a bit, this is by month. So, this whole height, if you discover, this is the precise, this is precisely our home mortgage payment, this $2,129. Now, on that really first month you saw that of my $2,100 just $400 of it, this is the $400, only $400 of it went to really pay for the principal, the real loan quantity.
Most of it opted for the interest of the month. But 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 much better color than that. There is less interest, let's state if we head out here, this is month 198, 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 speak about 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 planners or realtors tell you, hey, the advantage of buying your house is that it, it's, it has tax advantages, and it does.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I want to be really clear with what deductible means. So, let's for instance, discuss the interest fees. So, this entire time over thirty years I am paying $2,100 a month or $2,129.29 a month. Now, at the beginning a lot of that is interest.
That $1,700 is tax-deductible. Now, as we go further and further every month I get a smaller sized and smaller sized tax-deductible part of my actual home mortgage payment. Out here the tax reduction is actually extremely small. As I'm preparing to settle my entire mortgage and get the title of my house.
This doesn't mean, let's say that, let's state in one year, let's say in one year I paid, I do not know, I'm going to comprise a number, I didn't determine it on the spreadsheet. Let's state in year one, year one, I pay, I pay $10,000 in interest, $10,000 in interest.
And, however let's state $10,000 went to interest. To state this deductible, and let's say prior to this, let's say before this I https://b3.zcubes.com/v.aspx?mid=5096885&title=how-does-wyndham-timeshare-work 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 loan I would pay 35 percent taxes which would have to do with $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 simply take it from the $35,000 that I would have usually owed and only 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 was able to subtract this, not straight from my taxes, I was able to subtract 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 calculated.