And we're assuming that it deserves $500,000. We are assuming that it deserves $500,000. That is an asset. It's an asset since it provides you future advantage, the future advantage of having the ability to live in it. Now, there's a liability versus that asset, that's the home mortgage loan, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your assets and this is all of your financial obligation and if you were essentially to sell the assets and settle the debt. If you offer your home you 'd get the title, you can get the http://riveronqb901.yousher.com/how-to-cancel-welk-resort-timeshare cash and then you pay it back to the bank.
However if you were to relax this deal immediately after doing it then you would have, you would have a $500,000 house, you 'd settle 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.
However you might not assume it's constant and play with the spreadsheet a little bit. However I, what I would, I'm presenting this due to the fact that as we pay down the financial obligation this number is going to get smaller sized. So, this number is getting smaller sized, let's say at some time this is just $300,000, then my equity is going to get larger.
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 think of that there's actually 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.
So, on month zero, 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, 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 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 good guy, I'm not going to default on my mortgage 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 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 gone up 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 increased by $410,000.
So, that really, in the beginning, your payment, your $2,000 payment is primarily interest. Only $410 of it is principal. 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 new prepayment balance. I pay my home loan again. This is my brand-new loan balance. And notification, already by month two, $2.00 more went to primary and $2.00 less went to interest. And over the course of 360 months you're visiting that it's a real, substantial difference.
This is the interest and primary portions of our home mortgage payment. So, this entire height right here, this is, let me scroll down a little bit, this is by month. So, this whole height, if you notice, this is the exact, this is precisely our home loan 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, just $400 of it went to actually pay for the principal, the real loan amount.
The majority of it opted for the interest of the month. However as I begin paying down the loan, as the loan balance gets smaller 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 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 pay off the loan.
Now, the last thing I wish to talk about in this video without making it too long is this concept of a interest tax deduction. So, a lot of times you'll hear monetary 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 want to be really clear with what deductible methods. So, let's for circumstances, talk about the interest fees. So, this entire 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 even more monthly I get a smaller and smaller tax-deductible part of my actual home loan payment. Out here the tax reduction is really very small. As I'm preparing yourself to settle my whole mortgage and get the title of my house.
This doesn't indicate, let's state that, let's say in one year, let's say in one year I paid, I don't know, I'm going to make up a number, I didn't calculate it on the spreadsheet. Let's say 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 prior to this, let's say 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 state I was paying roughly 35 percent on that $100,000.
Let's state, you know, if I didn't have this home 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 mean that I can just take it from the $35,000 that I would have usually owed and just paid $25,000.