However you might not presume it's constant and play with the spreadsheet a bit. But I, what I would, I'm presenting this due to the fact that as we pay down the debt this number is going to get smaller. So, this number is getting smaller sized, let's say 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 before I get to the chart, let me in fact reveal you how I compute the chart and I do this over the course of 30 years and it passes month. So, so you can picture that there's in fact 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.
So, on month zero, which I don't 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 haven't made any home loan 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 an excellent guy, I'm not going to default on my home mortgage 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 very first payment I now have $125,410 in equity. So, my equity has increased 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 went up by $410,000.
So, that extremely, in the start, your payment, your $2,000 payment is mainly interest. Just $410 of it is principal. However as you, and then you, and then, so as your loan balance goes down 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 brand-new prepayment balance. I pay my home loan once again. This is my brand-new loan balance. And notice, currently by month 2, https://pbase.com/topics/cwrict8uj4/howtocan426 $2.00 more went to principal and $2.00 less went to interest. And over the course of 360 months you're going to see that it's a real, substantial difference.
This is the interest and principal 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 see, this is the exact, this is precisely 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, just $400 of it went to in fact pay down the principal, the real loan quantity.
The majority of it opted for the interest of the month. But 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 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 really goes to pay off the loan.
Now, the last thing I wish to speak about in this video without making it too long is this idea of a interest tax deduction. So, a great deal of times you'll hear monetary organizers or real estate agents tell you, hey, the advantage of purchasing 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 very clear with what deductible methods. So, let's for example, talk about the interest fees. 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 great deal of that is interest.
That $1,700 is tax-deductible. Now, as we go even more and further every month I get a smaller sized and smaller tax-deductible portion of my real mortgage payment. Out here the tax reduction is actually extremely small. 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 say in one year, let's say in one year I paid, I don't know, I'm going to comprise a number, I didn't calculate 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, but let's say $10,000 went to interest. To Click for more info state this deductible, and let's say before this, let's say prior to 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 state I was paying approximately 35 percent on that $100,000.
Let's state, you understand, if I didn't have this mortgage I would pay 35 percent taxes which would be about $35,000 in taxes for that year. Just, this is simply a rough quote. Now, when you state that $10,000 is tax-deductible, the interest is tax-deductible, that does not mean that I can simply take it from the $35,000 that I would have normally owed and just paid $25,000.
So, when I tell the Internal Revenue Service just how much did I make this year, rather of saying, I made $100,000 I state that I made $90,000 because I had the ability to deduct this, not directly from my taxes, I was able to deduct 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 really get calculated.