However you could not presume it's continuous and have fun with the spreadsheet a little bit. However I, what I would, I'm presenting this due to the fact that as we pay for the financial obligation this number is going to get smaller sized. So, this number is getting smaller, let's say at some time 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 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 actually 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
So, on month no, which I don't show here, you obtained $375,000. Now, over the course of that month they're going to charge you 0.46 percent interest, remember that was 5.5 percent divided by 12. 0.46 percent interest on $375,000 is $1,718.75. So, I have not 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 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, keep in mind, 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 increased by exactly $410. Now, you're probably saying, hey, 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 mainly interest. Only $410 https://telegra.ph/how-much-is-a-westgate-timeshare-09-05 of it is principal. But as you, and after that you, and then, 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 mortgage once again. This is my brand-new loan balance. And notice, currently by month two, $2.00 more went to principal and $2.00 less went to interest. And over the course of 360 months you're visiting that it's an actual, substantial distinction.
This is the interest and primary 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 entire 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 just $400 of it, this is the $400, just $400 of it went to actually pay down the principal, the actual loan amount.
The majority of it opted for the interest of the month. But 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 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 in fact goes to settle the loan.
Now, the last thing I wish to talk 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 coordinators or real estate agents inform you, hey, the advantage of buying 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 really clear with what deductible methods. So, let's for example, 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 lot of that is interest.
That $1,700 is tax-deductible. Now, as we go even more and further monthly I get a smaller sized and smaller tax-deductible part of my real mortgage payment. Out here the tax deduction is actually extremely little. As I'm preparing yourself to pay off my whole home mortgage and get the title of my home.
This doesn't mean, let's state that, let's say in one year, let's say in one year I paid, I do not know, I'm going to comprise 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, however let's say $10,000 went to interest. To state 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 say 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 know, if I didn't have this home 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 say that $10,000 is tax-deductible, the interest is tax-deductible, that does not suggest that I can just take it from the $35,000 that I would have usually owed and just paid $25,000.
So, when I inform the Internal Revenue Service just how much did I make this year, instead of saying, I made $100,000 I say that I made $90,000 because I had the ability to subtract this, not straight from my taxes, I had the ability to subtract it from my income. So, now if I just made $90,000 and I, and this is I'm doing a gross oversimplification of how taxes actually get computed.