But you might not assume it's continuous and have fun with the spreadsheet a little bit. But I, what I would, I'm introducing this since 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 eventually this is only $300,000, then my equity is going to get larger.
Now, what I've done here is, well, really prior to I get to the chart, let me actually show you how I compute the chart and I do this throughout thirty years and it goes by month. So, so you can picture that there's really 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.
So, on month no, which I do not reveal here, you obtained $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 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 a hero, I'm not going to default on my home loan so I make that very 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 first payment I now have $125,410 in equity. So, my equity has actually increased 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 increased by $410,000.
So, that really, in the beginning, your payment, your $2,000 payment is mostly interest. Just $410 of it is primary. However as you, and after that 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 new loan balance. And notice, currently by month two, $2.00 more went to primary and $2.00 less went to interest. And over the course of 360 months you're going to see that it's an actual, large difference.
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 little bit, this is by month. So, this whole height, if you discover, this is the precise, this is exactly our mortgage payment, this $2,129. Now, on that very first month you saw that of my $2,100 just $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. However as I begin paying for the loan, as the loan balance gets smaller and smaller sized, each of my payments, check here 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, 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 desire to speak about in this video without making it too long is this concept of a interest tax reduction. So, a lot of times you'll hear financial planners 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 entire payment. Your interest is tax deductible, deductible. And I desire to be extremely clear with what deductible means. So, let's for circumstances, discuss the interest charges. 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 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 portion of my actual home loan payment. Out here the tax deduction is in fact really little. As I'm preparing to settle my entire mortgage and get the title of my house.
This does not imply, let's say that, let's say in one year, let's state in one year I paid, I don't know, I'm going to comprise 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 state $10,000 went to interest. To say this deductible, and let's state prior to this, let's say before this I was making $100,000. https://holdenjbco638.edublogs.org/2020/09/08/how-to-sell-a-timeshare-by-owner/ 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 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 simply a rough quote. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not imply that I can just take it from the $35,000 that I would have usually owed and just paid $25,000.
So, when I tell the IRS 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 had the ability 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 computed.