But you could not presume it's constant and play 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. So, this number is getting smaller, let's say at some point this is only $300,000, then my equity is going to get bigger.
Now, what I've done here is, well, really before I get to the chart, let me actually show you how I determine the chart and I do this over the course of thirty years and it goes by month. So, so you can think of that there's actually 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, 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 have not made any home mortgage payments yet.
So, now prior to I pay any of my payments, instead of owing $375,000 at the end of the very first month I owe $376,718. Now, I'm a hero, I'm not going to default on my home mortgage so I make that first mortgage payment that we computed, that we determined 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 very first payment I now have $125,410 in equity. So, my equity has gone up by exactly $410. Now, you're most likely stating, hi, gee, I made a $2,000 payment, a roughly 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. But as you, and then 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 Check over here towards principal and less weighted towards interest.
This is your new prepayment balance. http://riverkixt044.over-blog.com/2020/09/how-to-legally-get-out-of-bluegreen-timeshare.html I pay my home loan again. This is my new loan balance. And notification, currently 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, large distinction.
This is the interest and primary portions of our mortgage payment. So, this whole height right here, this is, let me scroll down a bit, this is by month. So, this entire height, if you see, this is the specific, this is exactly 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 quantity.
The majority of it went for 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 much better color than that. There is less interest, let's say if we go out here, this is month 198, there, that last month there was less interest so more of my $2,100 really goes to settle the loan.
Now, the last thing I desire to talk about in this video without making it too long is this idea of a interest tax reduction. So, a great deal of times you'll hear monetary coordinators or real estate agents inform you, hey, the advantage of purchasing your home is that it, it's, it has tax advantages, and it does.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I wish to be very clear with what deductible ways. So, let's for circumstances, speak about the interest fees. So, this entire time over 30 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 even more every month I get a smaller sized and smaller tax-deductible part of my actual home loan payment. Out here the tax reduction is really extremely small. As I'm preparing yourself to settle my whole home mortgage and get the title of my home.
This does not indicate, let's state that, let's state in one year, let's state in one year I paid, I do not know, I'm going to make up 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, but let's say $10,000 went to interest. To state this deductible, and let's state before this, let's say 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 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 quote. Now, when you state 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 only 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 was able to subtract 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 in fact get determined.