However you could not assume it's consistent and play with the spreadsheet a little bit. But I, what I would, I'm presenting this since as we pay for the debt this number is going to get smaller. So, this number is getting smaller sized, let's state eventually this is only $300,000, then my equity is going to get larger.
Now, what I've done here is, well, really before I get to the chart, let me really reveal you how I compute the chart and I do this over the course of thirty years and it goes by month. So, so you can envision that there's really 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.
So, on month zero, which I do not reveal 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 haven't made any home 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 mortgage so I make that first mortgage payment that we computed, that we determined right over here.
Now, this right here, what I, little asterisk here, this is my equity now. So, remember, 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 probably 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 mainly 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 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 loan once again. This is my new loan balance. And notice, already by month two, $2.00 more went to principal and $2.00 less went to interest. And over the course of 360 months you're going to see that it's an actual, sizable distinction.
This is the interest and primary parts of our mortgage payment. So, this whole height right here, this is, let me scroll down a little bit, this is by month. So, this whole height, if you Go to this website see, this is the precise, this is precisely our home loan payment, this $2,129. 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 for the principal, the actual loan quantity.
Many of it chose the interest of the month. But as I start paying down the loan, as the loan balance gets smaller and smaller, each of my payments, there's less interest to pay, let http://aubinauklm.booklikes.com/post/3161596/how-to-get-a-free-timeshare-vacation me do a much better color than that. There is less interest, let's state if we go out here, this is month 198, there, that last month there was less interest so more of my $2,100 in fact goes to settle 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 great deal of times you'll hear monetary organizers or real estate agents inform you, hey, the advantage of buying your house is that it, it's, it has tax advantages, and it does.
Your interest, not your entire payment. Your interest is tax deductible, deductible. And I wish to be really clear with what deductible methods. So, let's for instance, speak about the interest charges. 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 great deal of that is interest.
That $1,700 is tax-deductible. Now, as we go further and even more each month I get a smaller sized and smaller sized tax-deductible portion of my real mortgage payment. Out here the tax deduction is in fact very small. As I'm getting ready to pay off my entire home mortgage and get the title of my house.
This doesn't imply, let's state that, let's state in one year, let's state in one year I paid, I don't know, I'm going to comprise a number, I didn't compute it on the spreadsheet. Let's say in year one, year one, I pay, I pay $10,000 in interest, $10,000 in interest.
And, but let's say $10,000 went to interest. To say this deductible, and let's state before 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 know, if I didn't have this home loan I would pay 35 percent taxes which would be about $35,000 in taxes for that year. Simply, 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 suggest that I can just take it from the $35,000 that I would have normally owed and only paid $25,000.
So, when I inform the IRS just how much did I make this year, rather of stating, I made $100,000 I state that I made $90,000 because I was able to deduct this, not straight from my taxes, I was able to deduct it from my earnings. 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.