However you might not presume it's continuous and play with the spreadsheet a little bit. However I, what I would, I'm presenting this because as we pay for the debt this number is going to get smaller sized. So, this number is getting smaller sized, let's say at some time this is just $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, in fact before I get to the chart, let me in fact reveal you how I determine the chart and I do this over the course of thirty 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 absolutely no, which I do not reveal 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 have not made any mortgage payments yet.
So, now prior to 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 an excellent guy, I'm not going to default on my home loan 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, 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 precisely $410. Now, you're most likely stating, hey, 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. Just $410 of it is principal. But 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 mortgage once again. This is my new loan balance. And notice, already by month two, $2.00 more went to primary and $2.00 less went to interest. And throughout 360 months you're going to see that it's an actual, substantial difference.
This is the interest and primary parts of our home loan payment. So, this whole 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 precisely our mortgage 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 real loan amount.
Many of it chose the interest of the month. However as I begin 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 much better color than that. There is less interest, let's say if we go out here, this is month 198, 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 desire to discuss in this video without making it too long is this concept of a interest tax reduction. So, a great deal of times you'll hear financial coordinators or real estate agents inform you, hey, the advantage of buying your home is that it, it's, Helpful hints it has tax advantages, and it does.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I wish to be really clear with what deductible methods. So, let's for example, talk about the interest fees. 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 monthly I get a smaller sized and smaller sized tax-deductible part of my actual home mortgage payment. Out here the tax reduction is in fact very little. As I'm preparing yourself to settle my entire mortgage and get the title of my house.
This doesn't suggest, let's state that, let's state in one year, let's state in one year I paid, I do not understand, http://dallasivpy021.jigsy.com/entries/general/how-to-sell-marriott-timeshare 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, 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 state, you understand, if I didn't have this home mortgage I would pay 35 percent taxes which would be about $35,000 in taxes for that year. Simply, this is just a rough estimate. Now, when you state 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 generally owed and only paid $25,000.
So, when I inform the Internal Revenue Service how much did I make this year, instead of saying, I made $100,000 I state that I made $90,000 since I had the ability to deduct this, not directly from my taxes, I was able to subtract 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 actually get calculated.