However you might not assume it's constant and play with the spreadsheet a bit. But I, what I would, I'm introducing this due to the fact that as we pay for the debt this number is going to get smaller sized. So, this number is getting smaller, let's say eventually this is only $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, really before I get to the chart, let me actually show you how I calculate the chart and I do this over the course of thirty years and it passes month. So, so you can think of 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 borrowed $375,000. Now, over the course of that month they're going to http://collinaglx524.huicopper.com/how-to-sell-a-timeshare-by-owner 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 before I pay any of my payments, rather of owing $375,000 at the end of the very first month I owe $376,718. Now, I'm a hero, I'm not going to default on my home mortgage so I make that Helpful hints first mortgage payment that we calculated, that we computed right over here.
Now, this right here, what I, little asterisk here, this is my equity now. So, remember, 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 most likely 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 extremely, in the start, your payment, your $2,000 payment is mainly interest. Just $410 of it is primary. However as you, and then you, and after that, so as your loan balance decreases 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 home loan once again. This is my brand-new loan balance. And notification, already by month 2, $2.00 more went to primary and $2.00 less went to interest. And throughout 360 months you're visiting 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 entire height, if you discover, this is the exact, this is exactly our home loan 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, only $400 of it went to really pay down the principal, the actual loan quantity.
Many of it went for the interest of the month. But 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 better color than that. There is less interest, let's state if we head out here, this is month 198, over there, that last month there was less interest so more of my $2,100 in fact goes to settle the loan.
Now, the last thing I wish to discuss in this video without making it too long is this idea of a interest tax reduction. So, a great deal of times you'll hear financial planners or real estate agents inform you, hey, the advantage of purchasing your home is that it, it's, it has tax benefits, and it does.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I wish to be extremely clear with what deductible means. So, let's for example, discuss the interest costs. So, this whole time over thirty 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 every month I get a smaller and smaller sized tax-deductible portion of my real home mortgage payment. Out here the tax reduction is in fact extremely small. As I'm preparing to settle my whole home loan and get the title of my house.
This doesn't suggest, let's state that, let's state in one year, let's say in one year I paid, I do not know, I'm going to make up a number, I didn't compute 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 say 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 state I was paying roughly 35 percent on that $100,000.
Let's state, you know, if I didn't have this 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 say that $10,000 is tax-deductible, the interest is tax-deductible, that does not indicate that I can just take it from the $35,000 that I would have generally owed and just paid $25,000.
So, when I tell the IRS just how much did I make this year, instead of saying, I made $100,000 I say that I made $90,000 since I had the ability to subtract this, not straight from my taxes, I had the ability to deduct it from my earnings. So, now if I just made $90,000 and I, and this is I'm doing a gross oversimplification of how taxes really get calculated.