However 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 down the debt this number is going to get smaller. So, this number is getting smaller, let's state at some point this is only $300,000, then my equity is going to get larger.
Now, what I've done here is, well, in fact 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 imagine that there's actually 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 reveal here, you obtained $375,000. Now, over the course of that month they're going Visit the website 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 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 hero, I'm not going to default on my mortgage so I make that first mortgage payment that we calculated, that we computed 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. http://lorenzovslf779.huicopper.com/how-to-sell-a-timeshare-legally 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 saying, hey, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity only increased by $410,000.
So, that extremely, in the beginning, your payment, your $2,000 payment is mostly interest. Just $410 of it is principal. However as you, and then you, and after that, so as your loan balance goes down 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 brand-new prepayment balance. I pay my mortgage again. This is my new loan balance. And notification, currently by month 2, $2.00 more went to principal and $2.00 less went to interest. And throughout 360 months you're going to see that it's an actual, sizable difference.
This is the interest and principal portions of our mortgage payment. So, this entire height right here, this is, let me scroll down a bit, this is by month. So, this whole height, if you see, this is the exact, this is exactly our home mortgage payment, this $2,129. Now, on that very 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 amount.
Many of it opted for the interest of the month. But as I start paying for the loan, as the loan balance gets smaller 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 say if we go out here, this is month 198, over 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 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 realtors inform you, hey, the advantage of purchasing your home is that it, it's, it has tax benefits, and it does.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I wish to be extremely clear with what deductible means. So, let's for instance, speak about the interest costs. So, this whole time over 30 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 sized and smaller tax-deductible portion of my real home mortgage payment. Out here the tax deduction is actually extremely little. As I'm preparing yourself to pay off my entire home mortgage and get the title of my home.
This doesn't mean, let's say that, let's state in one year, let's say in one year I paid, I do not understand, 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, however let's state $10,000 went to interest. To say this deductible, and let's say prior to 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 understand, if I didn't have this home mortgage I would pay 35 percent taxes which would be about $35,000 in taxes for that year. Just, this is just a rough estimate. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not indicate 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 IRS how much did I make this year, instead of stating, I made $100,000 I state that I made $90,000 due to the fact that I had the ability to subtract this, not directly from my taxes, I had the ability to deduct 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 actually get calculated.