And we're presuming that it deserves $500,000. We are assuming that it deserves $500,000. That is a property. It's an asset because it offers you future benefit, the future benefit 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 financial obligation.
If this was all of your assets and this is all of your financial obligation and if you were basically to offer the assets and settle the debt. If you offer the home you 'd get the title, you can get the money and then you pay it back to the bank.
However if you were to relax this transaction immediately after doing it then you would have, you would have a $500,000 home, you 'd pay off your $375,000 in debt and you would get in your pocket $125,000, which is exactly what your initial down payment was however this is your equity.
However you could not presume it's constant and have fun with the spreadsheet a bit. However I, what I would, I'm presenting 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 bigger.
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 throughout 30 years and it passes month. So, so you can picture that there's in fact 360 rows here on the actual spreadsheet and you'll see that if https://timesharecancellations.com/testimonial/roy-margie-l/ 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 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 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 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 saying, hey, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity only 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. But as you, and after that you, and then, so as your loan balance decreases you're going to pay less interest here therefore 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, currently 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 a real, substantial distinction.
This is the interest and principal 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 entire height, if you see, this is the precise, this is precisely our home loan payment, this $2,129. Now, on that really 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 actual loan quantity.
Many of it opted for the interest of the month. But as I begin paying for the loan, as the loan balance gets smaller and smaller, 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 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 settle the loan.
Now, the last thing I desire to speak 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 realtors inform you, hey, the benefit of buying your home is that it, it's, it has tax advantages, and it does.
Your interest, not your entire payment. Your interest is tax deductible, deductible. And I wish to be really clear with what deductible methods. So, let's for example, talk about the interest charges. So, this whole time over 30 years I am paying $2,100 a month or $2,129.29 a month. Now, at the beginning a lot of that is interest.
That $1,700 is tax-deductible. Now, as we go even more and further each month I get a smaller and smaller tax-deductible part of my real mortgage payment. Out here the tax reduction is really extremely small. As I'm getting all set to pay off my entire home mortgage and get the title of my house.
This does not mean, let's say that, let's state in one year, let's say 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 say $10,000 went to interest. To state 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 approximately 35 percent on that $100,000.
Let's say, you know, if I didn't have this home mortgage I would pay 35 percent taxes which would be about $35,000 in taxes for that year. Just, 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 normally owed and only paid $25,000.