But you could not presume it's get more info continuous and have fun with the spreadsheet a bit. However I, what I would, I'm presenting this since as we pay for the debt this number is going to get smaller. So, this number is getting smaller sized, let's say eventually 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 in fact show you how I determine the chart and I do this over the course of 30 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 zero, which I do not show here, you borrowed $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 mortgage payments yet.
So, now prior to 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 loan so I make that first 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, 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, hello, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity just increased by $410,000.
So, that really, in the beginning, your payment, your $2,000 payment is mainly interest. Only $410 of it is principal. However as you, and then you, and then, 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 brand-new prepayment balance. I pay my home mortgage once again. This is my new loan balance. And notification, currently 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 https://blogfreely.net/conald2o9i/often-the-primary-step-is-to-recognize-the-right-loan-provider 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 little bit, this is by month. So, this whole height, if you observe, this is the precise, this is precisely our 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, just $400 of it went to in fact pay for the principal, the actual loan amount.
The majority of it opted for the interest of the month. However as I start paying down 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 say if we head 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 desire to discuss in this video without making it too long is this idea of a interest tax deduction. So, a lot of times you'll hear monetary coordinators or real estate agents inform you, hey, the advantage 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 desire to be really clear with what deductible ways. So, let's for example, discuss the interest fees. 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 even more and even more each month I get a smaller sized and smaller sized tax-deductible portion of my real home loan payment. Out here the tax deduction is actually extremely little. As I'm preparing to settle my whole home mortgage and get the title of my home.
This does not imply, let's say that, let's state in one year, let's state in one year I paid, I don't understand, I'm going to make up 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 state before this, let's state 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 state I was paying approximately 35 percent on that $100,000.
Let's state, you know, 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. Just, this is just a rough price quote. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not mean that I can just take it from the $35,000 that I would have normally owed and just paid $25,000.
So, when I tell the IRS just how much did I make this year, rather of stating, I made $100,000 I say 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 earnings. So, now if I only made $90,000 and I, and this is I'm doing a gross oversimplification of how taxes in fact get determined.