However you might not presume it's constant and have fun with the spreadsheet a 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 point this is just $300,000, then my equity is going to get larger.
Now, what I've done here is, well, actually before I get to the chart, let me in fact reveal you how I calculate the chart and I do this over the course of 30 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 show here, you borrowed $375,000. Now, throughout 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 good man, I'm not going to default on my home mortgage so I make that first home mortgage payment that we computed, that we calculated 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 exactly $410. Now, you're probably saying, hi, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity only increased by $410,000.
So, that extremely, in the beginning, your payment, your $2,000 payment is primarily interest. Just $410 of it is principal. But as you, and then you, and after that, 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 brand-new loan balance. And notification, already by month 2, $2.00 more went to principal and $2.00 less went to interest. And throughout 360 months you're going to see that it's a real, substantial difference.
This is the interest and principal portions of our home mortgage 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 notice, this is the specific, this is precisely our home 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 in fact pay for the principal, the real loan amount.
Many of it opted 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 much better color than that. There is less interest, let's say if we head out here, this is month 198, over 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 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 financial coordinators or realtors tell you, hey, the advantage of buying your https://writeablog.net/frazigwfd5/5-000-x-0-28-1-400-total-regular-monthly-home-loan-payment-piti 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 desire to be very clear with what deductible methods. So, let's for circumstances, speak about the interest fees. 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 lot of that is interest.
That $1,700 is tax-deductible. Now, as we go further and even more each month I get a smaller and smaller tax-deductible portion of my real home loan payment. Out here the tax reduction is really extremely small. As I'm preparing yourself to pay off my whole mortgage and get the title of my house.
This does not suggest, let's state that, let's say in one year, let's state 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 say $10,000 went to interest. To say this deductible, and let's state 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 say I was paying approximately 35 percent on that $100,000.
Let's say, you understand, if I didn't have this mortgage I would pay 35 percent taxes which would have to do with $35,000 in taxes for that year. Simply, this is just a rough price quote. Now, when you state that $10,000 is tax-deductible, the interest is tax-deductible, that does not indicate that I can simply take it from the $35,000 that I would have generally owed and just paid $25,000.
So, when I inform the Internal Revenue Service just how much did I make this year, rather of stating, I made $100,000 I say that I made $90,000 since I was able to subtract this, not straight from my taxes, I had the ability to subtract 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 determined.