However you might not assume it's constant and have fun with the spreadsheet a bit. But I, what I would, I'm introducing this because as we pay down the financial obligation this number is going to get smaller sized. 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 bigger.
Now, what I have actually done here is, well, in fact prior to I get to the chart, let me in fact reveal you how I calculate the chart and I do this throughout 30 years and it goes by month. So, so you can imagine that there's in fact 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 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 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 person, I'm not going to default on my home mortgage so I make that very first mortgage payment that we calculated, 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 actually increased by precisely $410. Now, you're probably saying, hey, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity just increased by $410,000.
So, that extremely, in the beginning, your payment, your $2,000 payment is mostly interest. Just $410 of it is primary. 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 loan once again. This is my new loan balance. And notification, currently by month 2, $2.00 more went to primary and $2.00 less went to interest. And throughout 360 months you're going to see that it's a real, large distinction.
This is the interest and primary parts of our home mortgage payment. So, this entire 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 specific, this is precisely our home mortgage payment, this $2,129. Now, on that very 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 for the principal, the real loan quantity.
The majority of it chose the interest of the month. But as I start paying down the loan, as the loan balance gets smaller 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 head out here, this is month 198, over 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 discuss in this video without making it too long is this concept of a interest tax deduction. So, a lot of times you'll hear monetary organizers or realtors 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 entire payment. Your interest is tax deductible, deductible. And I desire to be really clear with what deductible means. So, let's for example, speak about the interest costs. So, this whole time over 30 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 each month I get a smaller sized and smaller sized tax-deductible part of my actual mortgage payment. Out here the tax deduction is actually very little. As I'm preparing yourself to settle my whole home mortgage and get the title of my home.
This doesn't indicate, let's say that, let's state in one year, let's say in one year I paid, I do not understand, I'm going to make up a number, I didn't determine 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 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 say I was paying roughly 35 percent on that $100,000.
Let's say, you know, if I didn't have this home loan I would pay 35 percent taxes which would have to do with $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 imply that I can simply take it from the $35,000 that I would have generally owed and only paid $25,000.
So, when I inform the Internal Revenue Service how much did I make this year, instead of stating, I made $100,000 I say that I made $90,000 due to the fact that I was https://zenwriting.net/abbots9le0/5-000-x-0-28-1-400-total-monthly-mortgage-payment-piti-joeand-39-s-overall able to deduct this, not directly from my taxes, I was able 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.