But you might not assume it's constant and play with the spreadsheet a little bit. But I, what I would, I'm introducing this since as we pay down the debt 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 have actually done here is, well, really prior to I get to the chart, let me in fact reveal you how I calculate the chart and I do this over the course of 30 years and it goes by month. So, so you can picture 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 no, which I do not reveal here, you borrowed $375,000. Now, over the course of 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 mortgage 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 computed, that we calculated right over here.
Now, this right here, what I, little asterisk here, this is my equity now. So, remember, 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 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 extremely, in the beginning, your payment, your $2,000 payment is mostly interest. Just $410 of it is primary. 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 mortgage once again. This is my new loan balance. And notification, currently by month two, $2.00 more went to principal and $2.00 less went to interest. And over the course of 360 months you're visiting that it's a real, substantial distinction.
This is the interest and primary portions of our mortgage payment. So, this entire height right here, this is, let me scroll down a little bit, this is by month. So, this entire height, if you see, this is the precise, this is precisely our mortgage payment, this $2,129. Now, on that very 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 actual loan quantity.
Most of it opted for the interest of the month. However as I start paying for the loan, as the loan balance gets smaller sized 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, over 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 deduction. So, a great deal of times you'll hear monetary organizers or realtors tell you, hey, the benefit of purchasing your home 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 wish to be really clear with what deductible ways. So, let's for example, discuss the interest charges. 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 further and even more monthly I get a smaller and smaller tax-deductible portion of my actual mortgage payment. Out here the tax deduction is actually really little. As I'm getting all set to pay off my whole mortgage and get the title of my house.
This does not suggest, let's say that, let's state 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 compute it on the spreadsheet. Let's state 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 state 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 say 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 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. Simply, 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 suggest that I can simply take it from the $35,000 that I would have typically owed and just paid $25,000.
So, when I tell the Internal Revenue Service how much did I make this year, rather of stating, I made $100,000 I state that I made $90,000 since I was able to subtract this, not directly https://pbase.com/topics/aearneckk2/howmuchd328 from my taxes, I had the ability to subtract 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 really get computed.