And we're presuming that it deserves $500,000. We are assuming that it's worth $500,000. That is a property. It's an asset because it gives you future benefit, the future advantage of being able to live in it. Now, there's a liability against that possession, that's the mortgage, that's the $375,000 liability, $375,000 loan or financial obligation.
If this was all of your possessions and this is all of your financial obligation and if you were essentially to offer the assets and settle the debt. If you sell your house you 'd get the title, you can https://timesharecancellations.com/a-guide-to-timeshare-cancellation-are-timeshares-too-good-to-be-true/ get the cash and after that you pay it back to the bank.
However if you were to unwind this transaction right away after doing it then you would have, you would have a $500,000 home, you 'd settle your $375,000 in financial obligation and you would get in your pocket $125,000, which is precisely what your initial down payment was but this is your equity.
But you might not presume it's consistent and play with the spreadsheet a bit. But I, what I would, I'm presenting this since as we pay down the debt this number is going to get smaller sized. So, this number is getting smaller, let's say eventually this is only $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 calculate the chart and I do this over the course of 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 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 mortgage payments yet.
So, now prior to 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 determined, 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 exactly $410. Now, you're most likely saying, hello, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity just went up by $410,000.
So, that extremely, in the start, your payment, your $2,000 payment is mostly interest. Only $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 brand-new prepayment balance. I pay my home 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 throughout 360 months you're going to see that it's an actual, substantial difference.
This is the interest and principal parts of our home 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 notice, this is the exact, this is exactly 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, just $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 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 much better color than that. There is less interest, let's say if we go out here, this is month 198, over 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 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 inform you, hey, the benefit of buying 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 desire to be really clear with what deductible ways. So, let's for instance, discuss the interest costs. So, this whole time over thirty 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 and smaller tax-deductible part of my actual home mortgage payment. Out here the tax deduction is really very small. As I'm preparing yourself to pay off my whole mortgage and get the title of my home.
This doesn't suggest, let's state that, let's state in one year, let's state in one year I paid, I do not know, I'm going to comprise a number, I didn't calculate 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 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 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 quote. Now, when you state that $10,000 is tax-deductible, the interest is tax-deductible, that does not mean that I can just take it from the $35,000 that I would have normally owed and just paid $25,000.