However you might not presume it's constant and play with the spreadsheet a little bit. But I, what I would, I'm introducing this because as we pay down the debt this number is going to get smaller. So, this number is getting smaller sized, let's say at some time this is only $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, really before I get to the chart, let me actually show you how I compute the chart and I do this throughout thirty years and it passes month. So, so you can envision 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 do not reveal here, you obtained $375,000. Now, throughout that month they're going to charge you 0.46 percent interest, Find out more 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 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 mortgage so I make that very first home 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 very first payment I now have $125,410 in equity. So, my equity has actually gone up by precisely $410. Now, you're most likely stating, hi, gee, I made a $2,000 payment, a roughly 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. Only $410 of it is principal. But as you, and after that you, and then, so as your loan balance decreases you're going to pay less interest here therefore 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 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 visiting that it's an actual, large distinction.
This is the interest and primary portions of our mortgage payment. So, this entire height right here, this is, let me scroll down a little bit, this is by month. So, this entire height, if you notice, this is the precise, 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 really pay down the principal, the real loan amount.
The majority of it chose the interest of the month. However as I start 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, over there, that last month there was less interest so more of my $2,100 really goes to settle 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 tell you, hey, the benefit of purchasing 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 example, discuss the interest costs. So, this whole time over thirty years I am paying $2,100 a month or $2,129.29 a month. Now, at the starting a lot of that is interest.
That $1,700 is tax-deductible. Now, as we go further and even more monthly I get a smaller and smaller tax-deductible portion of my real home loan payment. Out here the tax deduction is actually really small. As I'm getting ready to settle my whole mortgage and get the title of my house.
This does not suggest, let's say that, let's state in one year, let's state in one http://collinaglx524.huicopper.com/how-to-sell-a-timeshare-by-owner 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, but let's state $10,000 went to interest. To state this deductible, and let's say before this, let's say prior to 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 say I was paying roughly 35 percent on that $100,000.
Let's state, 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. Just, this is simply a rough quote. Now, when you state that $10,000 is tax-deductible, the interest is tax-deductible, that does not mean that I can simply take it from the $35,000 that I would have normally owed and just paid $25,000.
So, when I inform the Internal Revenue Service how much did I make this year, instead of saying, I made $100,000 I say that I made $90,000 because I had the ability to deduct this, not straight from my taxes, I had the ability to subtract it from my income. So, now if I only made $90,000 and I, and this is I'm doing a gross oversimplification of how taxes actually get computed.