However you could not assume it's constant and play with the spreadsheet a little 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 say at some point this is only $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, in fact before I get to the chart, let me actually 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 picture 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 show here, you borrowed $375,000. Now, throughout 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 have not made any mortgage payments yet.
So, now before I pay any of my payments, instead of owing $375,000 at the end of the very first month I owe $376,718. Now, I'm a good man, I'm not going to default on my mortgage so I make that first home loan payment that we calculated, that we calculated 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 first payment I now have $125,410 in equity. So, my equity has actually increased by exactly $410. Now, you're probably saying, hi, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity only went up by $410,000.
So, that extremely, in the beginning, your payment, your $2,000 payment is primarily interest. Only $410 of it is primary. But as you, and then 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 weighted towards principal and less weighted towards interest.
This is your new prepayment balance. I pay my home mortgage again. This is my brand-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 visiting that it's an actual, large distinction.
This is the interest and principal parts of our home loan payment. So, this entire height right here, this is, let me scroll down a bit, this is by month. So, this entire height, if you discover, this is the specific, this is precisely our home mortgage payment, this $2,129. Now, on that extremely first month you saw that of http://aubinauklm.booklikes.com/post/3161596/how-to-get-a-free-timeshare-vacation my $2,100 only $400 get more info of it, this is the $400, only $400 of it went to really pay for the principal, the real loan quantity.
Most of it chose the interest of the month. However as I start paying down the loan, as the loan balance gets smaller and smaller, each of my payments, there's less interest to pay, let me do a 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 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 reduction. So, a great deal of times you'll hear monetary organizers or real estate agents inform you, hey, the advantage of purchasing your house is that it, it's, it has tax benefits, 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 ways. So, let's for example, talk 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 lot of that is interest.
That $1,700 is tax-deductible. Now, as we go even more and further every month I get a smaller sized and smaller tax-deductible part of my actual home mortgage payment. Out here the tax deduction is in fact extremely small. As I'm getting all set to pay off my entire mortgage and get the title of my home.
This does not mean, let's state that, let's say in one year, let's say in one year I paid, I do not know, I'm going to make up a number, I didn't determine it on the spreadsheet. Let's say in year one, year one, I pay, I pay $10,000 in interest, $10,000 in interest.
And, however let's say $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 roughly 35 percent on that $100,000.
Let's say, you understand, 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 price quote. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not suggest that I can just take it from the $35,000 that I would have typically owed and just paid $25,000.
So, when I tell the IRS how much did I make this year, instead of stating, I made $100,000 I say that I made $90,000 due to the fact that I was able to deduct this, not directly from my taxes, I was able to subtract 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 computed.