However you could not presume it's consistent and play with the spreadsheet a bit. However I, what I would, I'm introducing this because as we pay for 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 larger.
Now, what I have actually done here is, well, actually prior to I get to the chart, let me actually show you how I determine the chart and I do this throughout 30 years and it passes month. So, so you can picture 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 absolutely no, which I don't reveal here, you obtained $375,000. Now, over the course of that month they're going to charge https://www.evernote.com/shard/s682/sh/14c21723-7ec0-25c0-e4ce-c8b5f0fdf5d6/13068e5122dacba1aaf49306b135bff8 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 haven't made any home mortgage payments yet.
So, now before 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 mortgage so I make that very first home loan payment that we calculated, 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 started 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 actually gone up by precisely $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 really, in the start, your payment, your $2,000 payment is mainly interest. Just $410 of it is principal. 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 new prepayment balance. I pay my home mortgage 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 going to see that it's an actual, substantial difference.
This is the interest and primary parts of our home mortgage 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 see, this is the precise, this is exactly our home mortgage payment, this $2,129. Now, on that extremely 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 down the principal, the real loan quantity.
Many of it went for the interest of the month. However as I start 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 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 settle the loan.
Now, the last thing I wish 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 organizers or real estate agents tell you, hey, the advantage of purchasing your home 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 wish to be extremely clear with what deductible ways. So, let's for circumstances, speak about the interest charges. So, this entire time over 30 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 further every month I get a smaller sized and smaller sized tax-deductible part of my actual mortgage payment. Out here the tax reduction is really really little. As I'm preparing to pay off my whole mortgage and get the title of my home.
This doesn't mean, let's say that, let's state in one year, let's state in one year I paid, I don't understand, I'm going to make up 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 say prior to 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 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 have to do with $35,000 in taxes for that year. Just, this is simply a rough price 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 typically 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 say that I made $90,000 since I had the ability to subtract 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 in fact get calculated.