But you might not presume it's continuous and have fun with the spreadsheet a bit. However I, what I would, I'm introducing 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 at some point this is just $300,000, then my equity is going to get larger.
Now, what I've done here is, well, in fact prior to I get to the chart, let me actually reveal you how I determine the chart and I do this throughout 30 years and it passes month. So, so you can imagine 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 zero, which I do not show here, you obtained $375,000. Now, over the course of that month they're going to charge you 0.46 percent interest, remember 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, 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 home loan so I make that 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 first payment I now have $125,410 in equity. So, my equity has gone up by exactly $410. Now, you're most likely stating, hi, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity only went up by $410,000.
So, that very, in the start, your payment, your $2,000 payment is mainly interest. Only $410 of it is principal. However as you, and after that you, and after that, 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 mortgage once 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 over the course of 360 months you're visiting that it's an actual, sizable distinction.
This is the interest and primary portions of our home mortgage payment. So, this entire height right here, this is, let me scroll down a bit, this is http://andyvitf135.trexgame.net/how-to-sell-wyndham-timeshare by month. So, this entire height, if you notice, this is the precise, this is exactly 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, only $400 of it went to really pay down the principal, the actual loan quantity.
The majority 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 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 pay off 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 organizers or real estate agents 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 whole payment. Your interest is tax deductible, deductible. And I wish to be extremely clear with what deductible means. So, let's for example, talk about the interest charges. So, this entire 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 further and further each month I get a smaller and smaller tax-deductible portion of my actual home loan payment. Out here the tax reduction is really really small. As I'm preparing to pay off my entire 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 compute 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 state $10,000 went to interest. To say 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 state 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 loan 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 estimate. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not suggest that I can simply take it from the $35,000 that I would have typically owed and just paid $25,000.
So, when I tell the IRS just how much did I make this year, rather of saying, I made $100,000 I say that I made $90,000 since I was able to subtract this, not straight 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 actually get computed.