However you could not presume it's continuous and play with the spreadsheet a little bit. However I, what I would, I'm presenting this because as we pay down the financial obligation this number is going to get smaller. So, this number is getting smaller sized, let's state at some time this is just $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, really prior to I get to the chart, let me actually show you how I determine the chart and I do this throughout thirty years and it passes month. So, so you can imagine 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 no, which I do not show here, you obtained $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 have not made any home loan 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 mortgage so I make that very first mortgage payment that we determined, 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 most likely stating, hi, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity only went up by $410,000.
So, that very, in the start, 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 decreases 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 once again. This is my brand-new loan balance. And notice, already 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, large difference.
This is the interest and primary portions of our home loan payment. So, this entire height right here, this is, let me scroll down a bit, this is by month. So, this entire height, if you observe, this is the exact, this is precisely our 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, only $400 of it went to actually pay down the principal, the real loan amount.
Most of it opted for the interest of the month. However as I begin paying down the loan, as the loan balance gets smaller 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 go 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 want 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 financial coordinators or real estate agents tell you, hey, the advantage of buying your home is that it, it's, it has tax advantages, and it does.
Your interest, not your entire payment. Your interest is tax deductible, deductible. And I want to be extremely clear with what deductible methods. So, let's for example, discuss the interest fees. 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 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 sized tax-deductible part of my real mortgage payment. Out here the tax reduction is in fact very small. As I'm getting prepared to pay off my whole home loan and get the title of my home.
This does not suggest, let's state that, let's say in one year, let's state in one year I paid, I do not understand, I'm going to comprise a number, I didn't calculate 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, but let's say $10,000 went to interest. To state this deductible, and let's state before this, let's state before 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 state 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 be about $35,000 in taxes for that year. Just, this is just a rough estimate. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not mean 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 IRS how much did I make this year, instead of stating, I made $100,000 I state that I made $90,000 since I was able to subtract this, not straight from my taxes, I had the ability to deduct it from my earnings. http://griffinsabo573.over-blog.com/2020/09/how-much-is-a-timeshare-in-disney.html 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.