But you could not assume it's constant and have fun with the spreadsheet a little bit. However 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 say at some time this is just $300,000, then my equity is going to get larger.
Now, what I've done here is, well, really before I get to the chart, let me really show you how I determine the chart and I do this throughout thirty years and it goes by month. So, so you can think of 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 do not reveal 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 mortgage payments yet.
So, now before I pay any of my payments, instead 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 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 very first payment I now have $125,410 in equity. So, my equity has gone up by precisely $410. Now, you're probably stating, hey, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity only increased by $410,000.
So, that really, in the beginning, your payment, your $2,000 payment is mostly interest. Just $410 of it is principal. However as you, and then you, and then, so as your loan balance goes down 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 new prepayment balance. I pay my home mortgage again. This is my new loan balance. And notification, already by month 2, $2.00 more went to principal and $2.00 less went to interest. And over the course of 360 months you're going to see that it's a real, large distinction.
This is the interest and principal parts of our mortgage payment. So, this whole height right here, this is, let me scroll down a bit, this is by month. So, this whole height, if you see, this is the precise, this is precisely our home mortgage payment, this $2,129. Now, on that really first month you saw that of my $2,100 only $400 of it, this is the $400, only $400 of it went to in fact pay down the principal, the actual 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, there's less interest to pay, let me do a much better color than that. There is less interest, let's state if we go 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 discuss in this video without making it too long is this idea of a interest tax reduction. So, a lot of times you'll hear monetary coordinators or real estate agents tell you, hey, the benefit of purchasing your house 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 desire to be extremely clear with what deductible means. So, let's for circumstances, talk 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 lot of that is interest.
That $1,700 is tax-deductible. Now, as we go even more and further every month I get a smaller sized and smaller sized tax-deductible part of my real home mortgage payment. Out here the tax deduction is really really small. As I'm preparing yourself to pay off my entire home loan and get the title of my house.
This doesn't indicate, let's state that, let's state in one year, let's say in one year I paid, I don't understand, I'm going to comprise a number, I didn't determine 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 say this deductible, and let's state prior to 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 state, you understand, if I didn't have this home loan I would pay 35 percent taxes which would be about $35,000 in taxes http://reidmmls685.jigsy.com/entries/general/what-is-a-timeshare-and-how-does-it-work for that year. Just, 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 mean that I can simply take it from the $35,000 that I would have generally owed and just paid $25,000.
So, when I tell the Internal Revenue Service 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 subtract this, not directly from my taxes, I was able 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 calculated.