However you might not presume it's continuous and have fun with the spreadsheet a little bit. But I, what I would, I'm presenting this since as we pay down the financial obligation this number is going to get smaller sized. So, this number is getting smaller, let's state at some time this is only $300,000, then my equity is going to get larger.
Now, what I've done here is, well, actually before I get to the chart, let me really reveal you how I determine the chart and I do this throughout 30 years and it passes month. So, so you can envision that there's really 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 show here, you borrowed $375,000. Now, over the course of 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 great person, I'm not going to default on my home mortgage so I make that first home loan payment that we determined, that we computed right over here.
Now, this right here, what I, little asterisk here, this is my equity now. So, remember, I began 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, hello, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity just went up by $410,000.
So, that really, in the beginning, your payment, your $2,000 payment is mostly interest. Just $410 of it is primary. But as you, http://emiliodmna715.trexgame.net/how-to-get-rid-of-timeshare and after that 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 home mortgage once again. This is my brand-new loan balance. And notification, currently by month two, $2.00 more went to principal and $2.00 less went to interest. And over the course of 360 months you're going to see that it's an actual, large difference.
This is the interest and primary parts of our home mortgage payment. So, this entire 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 exact, 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 in fact 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 sized 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 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 pay off the loan.
Now, the last thing I want to talk about in this video without making it too long is this idea of a interest tax reduction. So, a great deal of times you'll hear monetary organizers or realtors 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 wish to be very clear with what deductible means. So, let's for example, discuss the interest costs. So, this entire time over 30 years I am paying $2,100 a month or $2,129.29 a month. Now, at the starting a great deal of that is interest.
That $1,700 is tax-deductible. Now, as we go further and even more every month I get a smaller sized and smaller sized tax-deductible portion of my actual home mortgage payment. Out here the tax deduction is actually extremely small. As I'm preparing yourself to settle my entire mortgage and get the title of my house.
This does not mean, let's state that, let's state in one year, let's state in one year I paid, I do not understand, I'm going to make up a number, I didn't calculate 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 state this deductible, and let's say before this, let's state prior to this I was making $100,000. Let's put the loan aside, let's say I was making $100,000 a year and let's say I was paying approximately 35 percent on that $100,000.
Let's state, you know, if I didn't have this 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 state that $10,000 is tax-deductible, the interest is tax-deductible, that does not indicate that I can just take it from the $35,000 that I would have generally owed and only paid $25,000.
So, when I inform the Internal Revenue Service 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 was able to subtract this, not directly from my taxes, I was able to deduct it from my earnings. So, now if I just made $90,000 and I, and this is I'm doing a gross oversimplification of how taxes in fact get calculated.