But you could not presume it's continuous and play with the spreadsheet a bit. But I, what I would, I'm presenting this since as we pay down the financial obligation this number is going to get smaller sized. So, this number is getting smaller sized, let's state at some point 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 really show you how I compute the chart and I do this throughout thirty 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 absolutely no, which I don't reveal here, you borrowed $375,000. Now, over the course of 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 loan payments yet.
So, now before I pay any of my payments, rather of owing $375,000 at the end of the very first month I owe $376,718. Now, I'm a great guy, I'm not going to default on my home loan so I make that very 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 very first payment I now have $125,410 in equity. So, my equity has actually increased by exactly $410. Now, you're most likely saying, hey, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity just increased by $410,000.
So, that really, in the start, your payment, your $2,000 payment is mainly interest. Only $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 therefore 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 mortgage once again. This is my new loan balance. And notice, 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 an actual, sizable distinction.
This is the interest and principal portions 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 whole height, if you observe, this is the precise, this is exactly our home mortgage 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 in fact pay down the principal, the actual loan amount.
Most 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 better color than that. There is less interest, let's state if we head out here, this is month 198, there, that last month there was less interest so more of my $2,100 really goes to pay off the loan.
Now, the last thing I wish to talk about in this video without making it too long is this idea of a interest tax reduction. So, a lot of times you'll hear financial coordinators or realtors inform you, hey, the benefit of buying your house is that it, it's, it has tax benefits, and it does.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I desire to be very clear with what deductible methods. So, let's for example, speak about 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 beginning a great deal of that is interest.
That $1,700 is tax-deductible. Now, as we go even more and even more each month I get a smaller sized and smaller sized tax-deductible part of my actual home loan payment. Out here the tax reduction is actually very small. As I'm preparing yourself to settle my entire mortgage and get the title of my home.
This does not imply, let's say that, let's say in one year, let's say in one year I paid, I don't know, 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, but let's state $10,000 went to interest. To say 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 state, you know, 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 estimate. 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 generally owed and just paid $25,000.
So, when I tell the IRS how much did I make this year, instead of saying, I made $100,000 I state that I made $90,000 since I had the ability to subtract this, not directly from my taxes, I was able to deduct it from my income. https://www.evernote.com/shard/s682/sh/14c21723-7ec0-25c0-e4ce-c8b5f0fdf5d6/13068e5122dacba1aaf49306b135bff8 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.