And we're assuming that it's worth $500,000. We are assuming that it's worth $500,000. That is a possession. It's a property due to the fact that it gives you future advantage, the future advantage of being able to live in it. Now, there's a liability versus that asset, that's the mortgage loan, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your properties and this is all of your debt and if you were essentially to sell the assets and pay off the debt. If you offer the home you 'd get the title, you can get the cash and then you pay it back to the bank.
However if you were to relax this deal right away after doing it then you would have, you would have a $500,000 house, you 'd pay off your $375,000 in debt and you would get in your pocket $125,000, which is exactly what your original deposit was but this is your equity.
But you might not presume it's consistent and play with the spreadsheet a little bit. But I, what I would, I'm introducing this due to the fact that as we pay down the debt this number is going to get smaller sized. So, this number is getting smaller sized, 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 show you how I determine the chart and I do this throughout thirty years and it goes by month. So, so you can envision that there's in fact 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 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 haven't made any home loan payments yet.
So, now before 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 great person, I'm not going to default on my home loan 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, keep in mind, I started with $125,000 of equity. After paying one loan balance, after, after my first payment I now have $125,410 in equity. So, my equity has increased by exactly $410. Now, you're most likely saying, hi, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity just increased by $410,000.
So, that extremely, in the beginning, your payment, your $2,000 payment is primarily interest. Only $410 of it is primary. But as you, and after that you, and then, so as your loan balance decreases 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 brand-new prepayment balance. I pay my home loan again. This is my brand-new loan balance. And notice, currently by month two, $2.00 more went to primary 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 portions of our mortgage payment. So, this whole height right here, this is, let me scroll down a little bit, this is by month. So, this entire height, if you notice, this is the precise, this is exactly our 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, only $400 of it went to actually pay for the principal, the real loan quantity.
The majority of it went for the interest of the month. But 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 say if we head out here, this is month 198, over 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 wish to speak about in this video without making it too long is this concept of a interest tax reduction. So, a great deal 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 advantages, and it does.
Your interest, not your whole payment. Your interest is tax deductible, deductible. And I want to be extremely clear with what deductible methods. So, let's for example, talk about 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 starting a great deal of that is interest.
That $1,700 is tax-deductible. Now, as we go even more and further every month I get a smaller and smaller tax-deductible part of my actual mortgage payment. Out here the tax deduction is really very small. As I'm preparing to settle my whole home loan and get the title of my home.
This doesn't imply, let's state that, let's say 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 compute it on the spreadsheet. Let's state in year one, year one, I pay, I pay https://timesharecancellations.com/ $10,000 in interest, $10,000 in interest.
And, but let's state $10,000 went to interest. To state this deductible, and let's state before this, let's state 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 say I was paying approximately 35 percent on that $100,000.
Let's say, you understand, 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. Just, this is simply a rough estimate. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not suggest that I can just take it from the $35,000 that I would have generally owed and just paid $25,000.