And we're assuming that it's worth $500,000. We are assuming that it deserves $500,000. That is a possession. It's an asset due to the fact that it provides you future advantage, the future advantage of having the ability to reside 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 properties and this is all of your financial obligation and if you were essentially to offer the properties and pay off the debt. If you offer the 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 relax this deal immediately 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 initial deposit was however this is your equity.
But you could not assume it's constant and play with the spreadsheet a little bit. But https://timesharecancellations.com/author/titan-wesleyf/ I, what I would, I'm introducing this due to the fact that as we pay for the debt this number is going to get smaller sized. So, this number is getting smaller, let's state at some point this is only $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, actually before I get to the chart, let me actually reveal 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 envision 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 show here, you borrowed $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 haven't 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 a great person, I'm not going to default on my mortgage so I make that very first 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, remember, I began with $125,000 of equity. After paying one loan balance, after, after my first payment I now have $125,410 in equity. So, my equity has actually gone up by precisely $410. Now, you're most likely stating, hello, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity just went up by $410,000.
So, that really, in the beginning, your payment, your $2,000 payment is primarily interest. Just $410 of it is principal. But as you, and after that 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 new prepayment balance. I pay my home mortgage once again. This is my new loan balance. And notification, already by month 2, $2.00 more went to principal and $2.00 less went to interest. And over the course of 360 months you're visiting that it's an actual, sizable distinction.
This is the interest and primary portions of our mortgage payment. So, this whole height right here, this is, let me scroll down a bit, this is by month. So, this whole height, if you observe, this is the precise, 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, only $400 of it went to in fact pay for the principal, the real loan quantity.
Most of it opted for the interest of the month. However as I start 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, over 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 desire to discuss in this video without making it too long is this idea of a interest tax deduction. So, a lot of times you'll hear financial organizers or real estate agents tell you, hey, the advantage of purchasing 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 very clear with what deductible ways. So, let's for example, discuss the interest costs. 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 lot of that is interest.
That $1,700 is tax-deductible. Now, as we go further and even more each month I get a smaller sized and smaller tax-deductible part of my real home loan payment. Out here the tax reduction is in fact really small. As I'm getting all set to pay off my entire mortgage and get the title of my house.
This doesn't mean, let's state that, let's state in one year, let's state 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 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 say 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 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. Simply, this is just a rough quote. Now, when you state 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 only paid $25,000.