However you could not presume it's consistent and play with the spreadsheet a bit. However I, what I would, I'm presenting this since as we pay for the financial obligation this number is going to get smaller sized. So, this number is getting smaller sized, let's state at some time this is just $300,000, then my equity is going to get larger.
Now, what I have actually done here is, well, actually prior to I get to the chart, let me actually show you how I determine the chart and I do this throughout thirty years and it goes by month. So, so you can picture that there's really 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 show here, you obtained $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 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 good man, I'm not going to default on my home loan so I make that very first home loan payment that we determined, that we determined 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 first payment I now have $125,410 in equity. So, my equity has gone up by exactly $410. Now, you're probably saying, hi, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity just went up by $410,000.
So, that very, in the start, your payment, your $2,000 payment is primarily interest. Just $410 of it is principal. But as you, and then 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 home loan once again. This is my 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 visiting that it's a real, substantial difference.
This is the interest and principal parts of our mortgage payment. So, this whole height right here, this is, let me scroll down a bit, this is by month. So, this whole height, if you see, this is the exact, this is exactly our mortgage payment, this $2,129. Now, on that very first month you saw that of my $2,100 just $400 of it, this is the $400, just $400 of it went to in fact pay down the principal, the actual loan amount.
Most of it opted for the interest of the month. But as I start paying for the loan, as the loan balance gets smaller sized 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 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 desire 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 coordinators or real estate agents tell you, hey, the benefit of buying your house is that it, it's, it has tax advantages, and it does.
Your interest, not your entire payment. Your interest is tax deductible, deductible. And I wish to be really clear with what deductible methods. So, let's for example, discuss the interest charges. So, this whole time over thirty Hop over to this website 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 further every month I get a smaller sized and smaller sized tax-deductible part of my actual home loan payment. Out here the tax reduction is really very little. As I'm getting ready to settle my entire home loan and get the title of my home.
This does not imply, let's say that, let's state in one year, let's say https://sethraco992.hatenablog.com/entry/2020/09/08/164130 in one year I paid, I don't understand, I'm going to comprise 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, but let's state $10,000 went to interest. To say this deductible, and let's state before this, let's state 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 roughly 35 percent on that $100,000.
Let's state, you understand, if I didn't have this home loan I would pay 35 percent taxes which would be about $35,000 in taxes for that year. Simply, this is simply a rough price quote. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not indicate that I can simply take it from the $35,000 that I would have usually owed and just paid $25,000.
So, when I inform the IRS just how much did I make this year, rather of stating, I made $100,000 I say that I made $90,000 because I had the ability to subtract this, not straight 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 calculated.