But you might not assume it's continuous and have fun with the spreadsheet a bit. However I, what I would, I'm presenting this since as we pay for the financial obligation this number is going to get smaller. So, this number is getting smaller sized, let's state at some time this is just $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, really prior to I get to the chart, let me actually show you how I calculate the chart and I do this over the course of thirty years and it passes month. So, so you can picture 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 no, which I don't show here, you borrowed $375,000. Now, over the course of 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 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 first month I owe $376,718. Now, I'm a hero, I'm not going to default on my home mortgage so I make that very first home loan payment that we determined, that we determined right over here.
Now, this right here, what I, little asterisk here, this is my equity now. So, keep in mind, I started 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 gone up by exactly $410. Now, you're probably stating, hey, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity just increased by $410,000.
So, that very, in the start, your payment, your $2,000 payment is primarily interest. Just $410 of it is principal. But as you, and after that 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 Have a peek here weighted towards principal and less weighted towards interest.
This is your new prepayment balance. I pay my home loan again. This is my new loan balance. And notification, already by month two, $2.00 more went to principal and $2.00 less went to interest. And throughout 360 months you're visiting that it's a real, substantial difference.
This is the interest and principal portions of our home 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 notice, this is the exact, this is exactly our home loan payment, this $2,129. Now, on that really first month you saw that of my $2,100 only $400 of it, this is the $400, just $400 of it went to in fact pay down the principal, the actual loan quantity.
The majority of it opted for the interest of the month. But as I begin paying down the loan, as the loan balance gets smaller and smaller sized, each of my payments, there's less interest to pay, let me do a 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 actually goes to pay off the loan.
Now, the last thing I wish to talk 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 coordinators or real estate agents inform you, hey, the benefit 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 wish to be very clear with what deductible methods. 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 beginning a great deal 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 sized and smaller tax-deductible portion of my real home mortgage payment. Out here the tax reduction is really very small. As I'm preparing to pay off my entire home loan and get the title of my house.
This does not suggest, let's say 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.
And, but let's say $10,000 went to interest. To say this deductible, and let's say prior to this, let's state before this I was making $100,000. Let's put the loan aside, let's https://gumroad.com/lolfurcsyh/p/how-to-get-a-timeshare state I was making $100,000 a year and let's state I was paying roughly 35 percent on that $100,000.
Let's state, you know, if I didn't have this mortgage I would pay 35 percent taxes which would be about $35,000 in taxes for that year. Simply, 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 simply take it from the $35,000 that I would have generally owed and just paid $25,000.
So, when I inform the IRS just how much did I make this year, instead of saying, I made $100,000 I say that I made $90,000 since I had the ability to subtract this, not directly 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.