However you might not assume it's constant and play with the spreadsheet a bit. But I, what I would, I'm presenting this because as we pay down the debt this number is going to get smaller. So, this number is getting smaller, let's state at some time this is only $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, actually prior to I get to the chart, let me actually reveal you how I calculate the chart and I do this over the course of 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 zero, which I do not reveal 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 home 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 very first home mortgage payment that we computed, that we computed 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 first payment I now have $125,410 in equity. So, my equity has increased by exactly $410. Now, you're probably stating, hey, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity only increased by $410,000.
So, that really, 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 goes down you're going to pay less interest here therefore each of your http://riverpmwf515.almoheet-travel.com/how-much-does-timeshare-exit-team-charge 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 notice, 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 to see that it's a real, sizable difference.
This is the interest and principal portions of our mortgage payment. So, this whole height right here, this is, let me scroll down a bit, this is by month. So, this entire height, if you see, this is the precise, this is exactly our home mortgage payment, this $2,129. Now, on that very first month you saw that of my $2,100 only $400 of it, this is the $400, only $400 of it went to actually pay down the principal, the real loan quantity.
The majority of it chose the interest of the month. But as I begin paying for the loan, as the loan balance gets smaller and smaller sized, 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, 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 wish to discuss in this video without making it too long is this concept of a interest tax reduction. So, a lot of times you'll hear financial organizers or real estate agents tell you, hey, the benefit of buying your home 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 methods. So, let's for instance, talk about the interest charges. 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 lot of that is interest.
That $1,700 is tax-deductible. Now, as we go even more and even more monthly I get a smaller sized and smaller sized tax-deductible part of my real home loan payment. Out here the tax Click for more reduction is in fact very little. As I'm preparing yourself to settle my entire home loan and get the title of my house.
This doesn't suggest, let's say that, let's say in one year, let's state in one year I paid, I do not know, I'm going to comprise a number, I didn't compute 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 say $10,000 went to interest. To state this deductible, and let's state prior to this, let's say before 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 say, you understand, if I didn't have this mortgage 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 quote. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not imply that I can simply take it from the $35,000 that I would have usually owed and only paid $25,000.
So, when I tell the Internal Revenue Service just how much did I make this year, rather of stating, I made $100,000 I state that I made $90,000 because I had the ability to subtract this, not directly 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.