And we're presuming that it's worth $500,000. We are assuming that it's worth $500,000. That is an asset. It's an asset due to the fact that it gives you future advantage, the future benefit of being able to live in it. Now, there's a liability versus that asset, that's the home loan, that's the $375,000 liability, $375,000 loan or financial obligation.
If this was all of your properties and this is all of your debt and if you were essentially to offer the assets and pay off the financial obligation. If you sell your house you 'd get the title, you can get the cash and then you pay it back to the bank.
But if you were to relax this transaction right away after doing it then you would have, you would have a $500,000 home, you 'd pay off your $375,000 in financial obligation and you would get in your pocket $125,000, which is precisely what your initial deposit was but this is your equity.
But you could not presume it's continuous and play with the spreadsheet a little bit. However 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. So, this number is getting smaller, let's say at some point this is just $300,000, then my equity is going to get bigger.
Now, what I've done here is, well, actually before I get to the chart, let me in fact reveal you how I compute the chart and I do this throughout 30 years and it passes month. So, so you can imagine that there's really 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 show here, you obtained $375,000. Now, over the course of that month they're going to charge you 0.46 percent interest, remember 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 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 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, 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 exactly $410. Now, you're most likely saying, hey, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity only increased by $410,000.
So, that very, in the beginning, your payment, your $2,000 payment is primarily interest. Only $410 of it is principal. But as you, and then you, and then, so as your loan balance goes down 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 new loan balance. And notification, currently by month 2, $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 a real, sizable distinction.
This is the interest and primary parts of our home loan payment. So, this whole height right here, this is, let me scroll down a little bit, this is by month. So, this whole height, if you see, this is the specific, 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, only $400 of it went to in fact pay for the principal, the real loan quantity.
Many of it went for the interest of the month. But as I begin paying for the loan, as the loan balance gets smaller sized and smaller, 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 discuss in this video without making it too long is this concept of a interest tax deduction. So, a great deal of times you'll hear monetary coordinators or real estate agents tell 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 means. So, let's for instance, talk about the interest fees. 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 sized and smaller sized tax-deductible part of my real home loan payment. Out here the tax deduction is in fact really small. As I'm preparing yourself to pay off my whole home mortgage and get the title of my house.
This doesn't suggest, let's say that, let's state in one year, let's state in one year I paid, I do not understand, I'm going to comprise a number, I didn't determine 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, but let's state $10,000 went to interest. To say 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 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 https://timesharecancellations.com/author/titan-wesleyf/ do with $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 indicate that I can just take it from the $35,000 that I would have normally owed and only paid $25,000.