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 a possession since it offers you future advantage, the future advantage of being able to live in it. Now, there's a liability versus that property, 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 basically to offer the possessions and pay off the financial obligation. If you sell your home you 'd get the title, you can get the cash and after that you pay it back to the bank.
But if you were to relax this transaction 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 exactly what your initial deposit was however this is your equity.
But you might not presume it's consistent and have fun with the spreadsheet a bit. But I, what I would, I'm introducing this due to the fact that as we pay for the financial obligation 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 larger.
Now, what I have actually done here is, well, in fact prior to I get to the chart, let me in fact reveal you how I calculate the chart and I do this over the course of thirty years and it passes 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 no, which I don't show here, you obtained $375,000. Now, throughout 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, 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 loan so I make that first home loan payment that we computed, that we computed 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 increased by exactly $410. Now, you're probably stating, hey, 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 beginning, 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 mortgage again. This is my new loan balance. And notice, currently by month two, $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, substantial difference.
This is the interest and principal parts of our home loan 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 observe, this is the precise, this is precisely our home mortgage payment, this $2,129. Now, on that extremely first month you saw that of my $2,100 just $400 of it, this is the $400, only $400 of it went to actually pay down the principal, the actual loan amount.
Many of it chose the interest of the month. But as I begin paying down 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 state if we go out here, this is month 198, 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 talk about in this video without making it too long is this concept of a interest tax reduction. So, a lot of times you'll hear monetary coordinators or realtors tell you, hey, the advantage of purchasing your home is that it, it's, it has tax benefits, 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 ways. So, let's for example, speak about the interest costs. So, this entire time over thirty 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 sized tax-deductible portion of my actual home loan payment. Out here the tax deduction is actually extremely little. As I'm getting all set to pay off my whole home loan and get the title of my home.
This does not indicate, let's state that, let's state in one year, let's state 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 state in year one, year one, I pay, I pay $10,000 in interest, $10,000 in interest.
And, however let's state $10,000 went to interest. To say this deductible, and let's say before this, let's say prior to this I was making $100,000. Let's put the loan aside, let's state 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 be about $35,000 in taxes for that year. Just, this is simply a rough https://www.openlearning.com/u/carina-qfvzz1/blog/HowDoIGetRidOfATimeshare/ price quote. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not suggest that I can just take it from the $35,000 that I would have typically owed and just paid $25,000.