However you could not presume it's constant and have fun with the spreadsheet a bit. But I, what I would, I'm introducing this since as we pay down the financial obligation this number is going to get smaller. So, this number is getting smaller, let's state at some time this is just $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 actually show you how I determine the chart and I do this throughout thirty years and it passes month. So, so you can imagine 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 absolutely no, which I do not show here, you obtained $375,000. Now, throughout 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 loan 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 mortgage so I make that first home loan payment that we computed, that we computed 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 gone up by precisely $410. Now, you're most likely 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 really, in the start, your payment, your $2,000 payment is primarily interest. Just $410 of it is primary. But as you, and after that you, and then, 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 mortgage once again. This is my new loan balance. And notice, already by month 2, $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, substantial distinction.
This is the interest and principal 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 precisely our home loan 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 actually pay down the principal, the real loan quantity.
The majority of it went for the interest of the month. However as I start 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 much better color than that. There is less interest, let's say if we go 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 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 planners or realtors inform you, hey, the benefit of buying your home 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 desire to be extremely clear with what deductible methods. So, let's for example, speak about the interest charges. So, this whole 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 even more and further each month I get a smaller sized and smaller sized tax-deductible part of my real mortgage payment. Out here the tax reduction is actually very little. As I'm preparing yourself to settle my entire home mortgage and get the title of my home.
This doesn't imply, let's say that, let's say in one year, let's state in one year I paid, I don't understand, I'm going to comprise 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, however let's state $10,000 went to interest. To state this deductible, and let's say prior to 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 approximately 35 percent on that $100,000.
Let's say, you understand, if I didn't have this home mortgage I would pay 35 percent taxes which would have to do with $35,000 in taxes for that year. Simply, this is simply a rough estimate. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not suggest that I can https://miding6ksw.doodlekit.com/blog/entry/10583642/how-do-i-sell-a-timeshare simply take it from the $35,000 that I would have generally owed and just paid $25,000.
So, when I inform 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 since I was able to subtract this, not directly from my taxes, I had the ability to subtract 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 computed.