However 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, let's state eventually this is only $300,000, then my equity is going to get bigger.
Now, what I've done here is, well, actually before I get to the chart, let me in fact 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 actually 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
So, on month absolutely no, which I do not reveal 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 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 very first mortgage payment that we determined, that we calculated right over here.
Now, this right here, what I, little asterisk here, this is my equity now. So, keep in mind, I began 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 actually gone up by exactly $410. Now, you're most likely saying, hey, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity just increased by $410,000.
So, that extremely, in the start, your payment, your $2,000 payment is primarily interest. Only $410 of it is primary. However as you, and after that you, and then, 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 home loan once again. This is my brand-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 visiting that it's a real, sizable difference.
This is the interest and primary parts of our home loan 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 discover, this is the exact, this is exactly our mortgage payment, this $2,129. Now, on that extremely 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 for the principal, the actual loan quantity.
Most of it opted for the interest of the month. But as I begin 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 state 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 wish 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 realtors http://charliemloc215.jigsy.com/entries/general/how-much-is-a-westgate-timeshare tell you, hey, the benefit of purchasing your house is that it, it's, it has tax Take a look at the site here advantages, 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 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 further each month I get a smaller and smaller sized tax-deductible portion of my real mortgage payment. Out here the tax deduction is in fact really little. As I'm getting prepared 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 say in one year I paid, I don't know, I'm going to make up a number, I didn't calculate 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 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 roughly 35 percent on that $100,000.
Let's state, you know, 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. Simply, this is simply a rough price quote. 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 just paid $25,000.
So, when I inform the IRS just how much did I make this year, instead of saying, 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 was able to deduct it from my income. 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 computed.