And we're presuming that it's worth $500,000. We are presuming that it deserves $500,000. That is a possession. It's a possession because it gives you future advantage, the future benefit of having the ability to live in it. Now, there's a liability versus that property, that's the home loan, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your assets and this is all of your financial obligation and if you were essentially to sell the properties and settle 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 unwind this transaction instantly 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 precisely what your original down payment was but this is your equity.
However you could not presume it's continuous and have fun with the spreadsheet a little bit. However I, what I would, I'm presenting this because as we pay down the debt this number is going to get smaller. So, this number is getting smaller sized, let's say at some time this is just $300,000, then my equity is going to get bigger.
Now, what I have actually done here is, well, really before I get to the chart, let me in fact reveal you how I determine the chart and I do this throughout 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 absolutely no, which I do not show here, you obtained $375,000. Now, throughout that month they're going to charge you 0.46 percent https://timesharecancellations.com/ 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 haven't made any home loan payments yet.
So, now before 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 great man, I'm not going to default on my home mortgage so I make that first home loan payment that we calculated, that we determined 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 increased by precisely $410. Now, you're probably saying, hi, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity just went up by $410,000.
So, that extremely, in the beginning, your payment, your $2,000 payment is mostly interest. Only $410 of it is principal. But as you, and after that you, and after that, so as your loan balance goes down 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 mortgage once again. This is my brand-new loan balance. And notice, already by month two, $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 a real, large distinction.
This is the interest and primary portions 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 entire height, if you discover, this is the precise, this is exactly 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 actually pay down the principal, the actual loan amount.
The majority of it opted for 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 go out here, this is month 198, 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 discuss in this video without making it too long is this concept of a interest tax deduction. So, a great deal of times you'll hear financial coordinators or real estate agents inform you, hey, the advantage of buying your house 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 extremely clear with what deductible methods. So, let's for example, discuss the interest fees. 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 further and even more every month I get a smaller and smaller sized tax-deductible portion of my actual home loan payment. Out here the tax deduction is really really little. As I'm preparing yourself to pay off my whole home mortgage and get the title of my home.
This does not indicate, 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, however let's state $10,000 went to interest. To state this deductible, and let's say prior to this, let's say prior to 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 roughly 35 percent on that $100,000.
Let's say, you understand, if I didn't have this home mortgage I would pay 35 percent taxes which would have to do with $35,000 in taxes for that year. Just, this is simply a rough estimate. 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 generally owed and just paid $25,000.