But you might not assume it's consistent and play with the spreadsheet a little bit. But I, what I would, I'm presenting this due to the fact that as we pay for the debt this number is going to get smaller. So, this number is getting smaller sized, let's state at some time this is only $300,000, then my equity is going to get bigger.
Now, what I've done here is, well, really prior to I get to the chart, let me really show you how I calculate the chart and I do this over the course of 30 years and it passes month. So, so you can picture that there's actually 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, keep 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 prior to I pay any of my payments, instead of owing $375,000 at the end of the first month I owe $376,718. Now, I'm a good person, I'm not http://louispzwo582.simplesite.com/447002681 going to default on my mortgage so I make that first home mortgage payment that we calculated, that we determined right over here.
Now, this right here, what I, little asterisk here, this is my equity now. So, remember, I started 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 gone up by exactly $410. Now, you're most likely stating, hey, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity just increased by $410,000.
So, that very, in the beginning, your payment, your $2,000 payment is mainly interest. Just $410 of it is principal. However as you, and after that you, and then, so as your loan balance goes down you're going to pay less interest here and so 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 mortgage once again. This is my new loan balance. And notice, already 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 an actual, large difference.
This is the interest and principal parts of our mortgage payment. So, this entire 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 specific, this is exactly our mortgage payment, this $2,129. Now, on that extremely first month you saw that of my $2,100 only $400 of it, this is the $400, just $400 of it went to really pay down the principal, the actual loan amount.
The majority of it went for the interest of the month. However as I start paying down 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 actually goes to settle the loan.
Now, the last thing I wish to talk about 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 organizers or realtors 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 whole payment. Your interest is tax deductible, deductible. And I wish to be really clear with what deductible methods. So, let's for instance, discuss the interest charges. So, this whole 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 even more every month I get a smaller sized and smaller sized tax-deductible part of my actual home mortgage payment. Out here the tax deduction is really extremely small. As I'm preparing to pay off my whole home mortgage and get the title of my house.
This doesn't imply, let's say that, let's state in one year, let's say in one year I paid, I don't understand, 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 say $10,000 went to interest. To state this deductible, and let's say before this, let's say before this I was making $100,000. Let's put the loan aside, let's state 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 loan I would pay 35 percent taxes which would be about $35,000 in taxes for that year. Simply, this is just a rough quote. 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 normally owed and just paid $25,000.
So, when I inform the IRS just how much did I make this year, rather of saying, I made $100,000 I state that I made $90,000 due to the fact that I was able to subtract this, not straight from my taxes, I had the ability 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 actually get calculated.