And we're assuming that it's worth $500,000. We are assuming that it deserves $500,000. That is a possession. It's a property because it gives you future advantage, the future benefit of being able to live in it. Now, there's a liability against that property, that's the mortgage, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your possessions and this is all of your debt and if you were essentially to sell the properties and pay off the debt. 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.
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 settle your $375,000 in debt and you would get in your pocket $125,000, which is precisely what your initial deposit was however this is your equity.
However you could not presume it's constant and have fun with the spreadsheet a little bit. But I, what I would, I'm presenting this because as we pay down the debt this number is going to get smaller sized. So, this number is getting smaller, let's state eventually this is just $300,000, then my equity is going to get bigger.
Now, what I've done here is, well, really prior to I get to the chart, let me really show you how I calculate the chart and I do this throughout thirty years and it goes by month. So, so you can picture 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 zero, 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, instead of owing $375,000 at the end of the first month I owe $376,718. Now, I'm an excellent person, I'm not going to default on my home mortgage so I make that very first mortgage 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 gone up by precisely $410. Now, you're most likely saying, hi, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity only increased by $410,000.
So, that extremely, in the start, your payment, your $2,000 payment is primarily interest. Just $410 of it is primary. However as you, and then you, and then, 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 home loan again. This is my new loan balance. And notification, already by month 2, $2.00 more went to primary and $2.00 less went to interest. And over the course of 360 months you're going to see that it's an actual, substantial distinction.
This is the interest and primary parts of our home mortgage 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 notice, this is the specific, this is precisely our 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 in fact pay for the principal, the actual loan quantity.
The majority of it chose the interest of the month. However as I start paying down the loan, as the loan balance gets smaller and smaller sized, 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, over there, that last month there was less interest so more of my $2,100 in fact goes to pay off 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 reduction. So, a great deal of times you'll hear financial organizers or realtors inform you, hey, the benefit of buying your house 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 want to be really clear with what deductible methods. So, let's for circumstances, speak about the interest fees. So, this whole time over thirty years I am paying $2,100 a month or $2,129.29 a month. Now, at the starting a lot of that is interest.
That $1,700 is tax-deductible. Now, as we go even more and even more every month I get a smaller and smaller sized tax-deductible part of my actual mortgage payment. Out here the tax deduction is actually very little. As I'm getting ready to pay off my entire home mortgage and get the title of my house.
This doesn't suggest, let's state that, let's say in one year, let's state in one year I paid, I do not understand, 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, but let's say $10,000 went to interest. To state this deductible, and let's say before 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 state I was paying approximately 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 Visit this website which would have to do with $35,000 in taxes for that year. Just, this is just a rough estimate. Now, when you say that $10,000 is tax-deductible, the interest https://www.scribd.com/document/475253100/391182how-do-i-get-rid-of-my-timeshare 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.