However you could not assume it's consistent 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 down the financial obligation this number is going to get smaller sized. So, this number is getting smaller sized, let's say at some point this is only $300,000, then my equity is going to get larger.
Now, what I've done here is, well, actually prior to I get to the chart, let me really show you how I determine the chart and I do this throughout thirty years and it passes month. So, so you can picture that there's in fact 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.
So, on month no, which I don't show here, you borrowed $375,000. Now, throughout that month they're going to charge you 0.46 percent interest, bear 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 home loan payments yet.
So, now prior to 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 man, 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 first payment I now have $125,410 in equity. So, my equity has increased by exactly $410. Now, you're most likely stating, hello, 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 start, your payment, your $2,000 payment is mostly interest. Only $410 of it is primary. However as you, and then you, and after that, so as your loan balance goes down 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 again. This is my brand-new loan balance. And notice, 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 going to see that it's an actual, large 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 bit, this is by month. So, this whole height, if you notice, this is the exact, this is exactly our home 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, only $400 of it went to actually pay down the principal, the actual loan amount.
Many of it chose the interest of the month. But as I start paying for the loan, as the loan balance gets smaller sized and smaller sized, 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, over there, that last month there was less interest so more of my $2,100 actually goes to settle the loan.
Now, the last thing I want to talk about in this video without making it too long is this idea of a interest tax deduction. So, a great deal of times you'll hear monetary planners or real estate agents tell you, hey, the benefit of buying your home 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 wish to be really clear with what deductible means. So, let's for example, 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 lot of that is interest.
That $1,700 is tax-deductible. Now, as we go even more and even more each month I get a smaller and smaller tax-deductible portion of my actual mortgage payment. Out here the tax deduction is actually really little. As I'm getting all set to pay off my entire home loan and get the title of my house.
This doesn't suggest, let's state that, let's state 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 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 say 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 approximately 35 percent on that $100,000.
Let's state, 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. Just, this is just a rough price 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 typically owed and just paid $25,000.
So, when I tell the Internal Revenue Service just how much did Learn here I make this year, instead of stating, I made $100,000 I say that I made https://karanaujlamusic2bddo.wixsite.com/donovandwdc421/post/how-to-cancel-timeshare $90,000 since I had the ability to deduct this, not directly 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 in fact get determined.