And we're assuming that it's worth $500,000. We are assuming that it's worth $500,000. That is an asset. It's a possession due to the fact that it provides you future benefit, the future advantage of having the ability to live in it. Now, there's a liability versus that possession, 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 financial obligation and if you were essentially to sell the properties and settle the debt. If you offer your house you 'd get the title, you can get the money and then 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 house, you 'd pay off your $375,000 in financial obligation and you would get in your pocket $125,000, which is precisely what your original deposit was however this is your equity.
However you could not assume it's constant and play with the spreadsheet a little bit. But I, what I would, I'm presenting this because as we pay for the debt this number is going to get smaller sized. So, this number is getting smaller, let's say eventually this is just $300,000, then my equity is going to get larger.
Now, what I've https://timesharecancellations.com/author/wfgadmin/ 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 30 years and it goes by month. So, so you can think of 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 do not show 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 haven't made any mortgage payments yet.
So, now prior to 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 hero, I'm not going to default on my home loan so I make that 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 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 gone up by exactly $410. Now, you're probably saying, hey, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity only increased by $410,000.
So, that very, in the start, your payment, your $2,000 payment is mainly 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 brand-new prepayment balance. I pay my 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 an actual, sizable difference.
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 observe, this is the exact, this is exactly our home 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, 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. However as I start paying down 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 much 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 in fact 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 deduction. So, a great deal of times you'll hear monetary organizers 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 entire payment. Your interest is tax deductible, deductible. And I desire to be really clear with what deductible methods. So, let's for instance, talk about 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 further and further each month I get a smaller and smaller tax-deductible portion of my actual home loan payment. Out here the tax deduction is actually extremely small. As I'm getting ready to pay off my entire mortgage and get the title of my house.
This does not suggest, let's state that, let's say in one year, let's say in one year I paid, I don't understand, I'm going to comprise 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, but let's say $10,000 went to interest. To say this deductible, and let's say before 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 roughly 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. Just, this is simply a rough price quote. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not indicate that I can simply take it from the $35,000 that I would have generally owed and only paid $25,000.