But you might not assume it's continuous and play with the spreadsheet a bit. But I, what I would, I'm presenting this since as we pay down the debt this number is going to get smaller. So, this number is getting smaller, let's state eventually this is just $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 actually show you how I compute the chart https://elwinnn3kp.doodlekit.com/blog/entry/10610406/how-much-is-a-disney-timeshare and I do this throughout thirty years and it goes by month. So, so you can think of 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 zero, 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 haven't made any home mortgage 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 loan so I make that first home loan payment that we computed, 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 very first payment I now have $125,410 in equity. So, my equity has gone up by precisely $410. Now, you're probably saying, hello, 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. But as you, and after that 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 mortgage again. This is my new loan balance. And notification, currently by month 2, $2.00 more went to principal and $2.00 less went to interest. And throughout 360 months you're visiting that it's a real, substantial distinction.
This is the interest and principal parts of our home 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 specific, this is precisely our home loan payment, this $2,129. Now, on that really first month you saw that of my $2,100 only $400 of it, this is the $400, just $400 of it went to in fact pay down the principal, the actual loan amount.
The majority of it opted for the interest of the month. However as I start paying for the loan, as the loan balance gets smaller sized and smaller, 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 Click for source 198, over there, that last month there was less interest so more of my $2,100 actually goes to pay off 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 reduction. So, a great deal of times you'll hear financial coordinators or realtors inform you, hey, the advantage of purchasing your house 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 really clear with what deductible means. So, let's for instance, talk about the interest charges. So, this entire time over thirty 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 monthly I get a smaller and smaller sized tax-deductible part of my actual home loan payment. Out here the tax reduction is actually really small. As I'm preparing yourself to pay off my entire home mortgage and get the title of my house.
This does not 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 comprise a number, I didn't compute 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, however let's state $10,000 went to interest. To say this deductible, and let's say prior to 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 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. Simply, this is simply a rough estimate. Now, when you say 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 Internal Revenue Service how much did I make this year, rather of stating, I made $100,000 I state that I made $90,000 because I was able to subtract this, not directly 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 in fact get determined.