And we're assuming that it deserves $500,000. We are assuming that it's worth $500,000. That is a possession. It's an asset since it provides you future advantage, the future advantage of having the ability to reside in it. Now, there's a liability versus that possession, that's the home loan, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your possessions and this is all of your financial obligation and if you were basically to offer the properties and pay off the debt. If you offer 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 relax this deal right away after doing it then you would have, you would have a $500,000 home, you 'd pay off 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.
However you might not assume it's continuous and play with the spreadsheet a little bit. However I, what I would, I'm introducing this because as we pay for 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 larger.
Now, what I've done here is, well, really prior to I get to the chart, let me actually reveal you how I compute the chart and I do this over the course of 30 years and it goes by month. So, so you can imagine that there's actually 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 do not reveal 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 home mortgage payments yet.
So, now prior to I pay any of my payments, rather 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 loan so I make that very first home loan payment that we computed, that we calculated 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 gone up by precisely $410. Now, you're most likely stating, hi, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity only went up by $410,000.
So, that really, in the start, your payment, your $2,000 payment is mostly interest. Only $410 of it is principal. However as you, and then 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 to be more weighted towards principal and less weighted towards interest.
This is your new prepayment balance. I pay my home loan once again. This is my brand-new loan balance. And notice, already by month two, $2.00 more went to primary and $2.00 less went to interest. And throughout 360 months you're visiting that it's an actual, substantial distinction.
This is the interest and primary parts of our home mortgage payment. So, this entire height right here, this is, let me scroll down a bit, this is by month. So, this whole height, if you notice, this is the exact, this is precisely our home loan 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, just $400 of it went to really 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 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 head out here, this is month 198, over there, http://riveronqb901.yousher.com/how-to-cancel-welk-resort-timeshare 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 buying your home is that it, it's, it has tax benefits, 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 ways. So, let's for example, talk about 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 great deal 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 actual mortgage payment. Out here the tax deduction is in fact really small. As I'm getting ready to settle my whole home loan 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 know, I'm going to comprise a number, I didn't compute 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 prior to this, let's state before 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 understand, 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 estimate. Now, when you state that $10,000 is tax-deductible, the interest is tax-deductible, that does not mean that I can just take it from the $35,000 that I would have normally owed and only paid $25,000.