And we're assuming that it's worth $500,000. We are presuming that it's worth $500,000. That is a possession. It's an asset since it offers you future advantage, the future benefit of being able to reside in it. Now, there's a liability versus that asset, 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 sell the possessions and pay off the financial obligation. If you offer your home you 'd get the title, you can get the cash and then you pay it back to the bank.
But if you were to unwind this deal instantly 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 however this is your equity.
But you could not assume it's consistent and have fun with the spreadsheet a bit. But I, what I would, I'm presenting this since as we pay for the debt this number is going to get smaller sized. So, this number is getting smaller sized, let's say eventually this is only $300,000, then my equity is going to get bigger.
Now, what I've done here is, well, actually prior to I get to the chart, let me actually show you how I determine the chart and I do this over the course of 30 years and it goes by month. So, so you can imagine that there's really 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 don't reveal here, you obtained $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 home 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 first home mortgage payment that we calculated, that we determined 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 most likely stating, hi, gee, I made a $2,000 payment, an approximately 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. 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 mortgage once again. This is my new loan balance. And notice, already by month 2, $2.00 more went to principal and $2.00 less went to interest. And throughout 360 months you're visiting that it's a real, sizable distinction.
This is http://daltonjrqb668.yousher.com/how-to-cancel-wyndham-timeshare the interest and primary parts of our mortgage payment. So, this whole height right here, this is, let me scroll down a bit, this is by month. So, this entire height, if you notice, this is the exact, this is exactly our home loan payment, this $2,129. Now, on that very first month you saw that of my $2,100 just $400 of it, this is the $400, only $400 of it went to in fact pay down the principal, the actual loan amount.
Most of it went for the interest of the month. But as I start paying for the loan, as the loan balance gets smaller 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 say if we head out here, this is month 198, 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 want to talk 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 organizers or realtors tell you, hey, the benefit of buying your home 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 wish to be really clear with what deductible methods. So, let's for instance, speak 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 further and even more monthly I get a smaller and smaller tax-deductible part of my actual home mortgage payment. Out here the tax deduction is in fact really small. As I'm getting prepared to pay off my whole mortgage and get the title of my house.
This doesn't suggest, let's state that, let's say in one year, let's say in one year I paid, I do not know, 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, however let's say $10,000 went to interest. To state this deductible, and let's state prior to this, let's state prior to 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 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. Simply, this is just a rough price quote. Now, when you state that $10,000 is tax-deductible, the interest is tax-deductible, that does not imply that I can just take it from the $35,000 that I would have generally owed and just paid $25,000.