And we're assuming that it deserves $500,000. We are assuming that it deserves $500,000. That is a property. It's an asset since it gives you future benefit, the future advantage of being able to live in it. Now, there's a liability against that asset, that's the home loan, 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 assets and pay off the debt. If you sell the 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 relax this deal instantly 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 down payment was however this is your equity.
But you could not assume it's continuous and play with the spreadsheet a bit. But I, what I would, I'm presenting 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 say at some point this is only $300,000, then my equity is going to get larger.
Now, what I have actually done here is, well, actually before I get to the chart, let me really reveal you how I compute the chart and I do this over the course of 30 years and it passes month. So, so you can think of that there's in fact 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.
So, on month no, which I do not reveal here, you obtained $375,000. Now, over the course of that month they're going to charge you 0.46 percent interest, bear 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 mortgage payments yet.
So, now prior to 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 hero, I'm not going to default on my home mortgage so I make that first mortgage payment that we calculated, that we calculated right over here.
Now, this right here, what I, little asterisk here, this is my equity now. So, remember, 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 exactly $410. Now, you're probably stating, hello, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity just went up by $410,000.
So, that very, in the beginning, your payment, your $2,000 payment is mainly interest. Only $410 of it is principal. However as you, and after that you, and after that, so as your loan balance goes down you're going to pay less interest here therefore each of your payments are going https://timesharecancellations.com/tools/ to be more weighted towards principal and less weighted towards interest.
This is your new prepayment balance. I pay my mortgage 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 throughout 360 months you're visiting that it's a real, substantial difference.
This is the interest and principal parts 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 entire height, if you notice, this is the exact, this is precisely our home mortgage 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, only $400 of it went to actually pay for the principal, the actual loan quantity.
Most of it chose the interest of the month. However as I start paying for the loan, as the loan balance gets smaller sized 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 actually goes to pay off the loan.
Now, the last thing I desire to talk about in this video without making it too long is this idea of a interest tax reduction. So, a lot of times you'll hear monetary coordinators or real estate agents tell you, hey, the benefit of purchasing your house 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 extremely clear with what deductible methods. So, let's for instance, talk about the interest costs. 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 lot of that is interest.
That $1,700 is tax-deductible. Now, as we go further and even more every month I get a smaller and smaller tax-deductible portion of my real home loan payment. Out here the tax deduction is actually really little. As I'm preparing yourself to settle my whole home loan and get the title of my home.
This doesn't 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, but let's say $10,000 went to interest. To say this deductible, and let's say prior to this, let's say before 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 approximately 35 percent on that $100,000.
Let's say, you know, if I didn't have this home loan 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 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.