And we're presuming that it's worth $500,000. We are presuming that it's worth $500,000. That is an asset. It's a property due to the fact that it provides you future advantage, the future advantage of being able to reside in it. Now, there's a liability versus that asset, that's the mortgage, that's the $375,000 liability, $375,000 loan or financial obligation.
If this was all of your possessions and this is all of your debt and if you were basically to sell the possessions 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 home, you 'd settle your $375,000 in debt and you would get in your pocket $125,000, which is precisely what your initial deposit was however this is your equity.
But you might not assume it's continuous and have fun with the spreadsheet a bit. However I, what I would, I'm presenting this because as we pay for the debt this number is going to get smaller. So, this number is getting smaller, let's say at some point 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 in fact show you how I calculate the chart and I do this throughout thirty years and it passes month. So, so you can picture 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 absolutely no, which I don't show here, you borrowed $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 haven't made any home loan payments yet.
So, now prior to I pay any of my payments, rather of owing $375,000 at the end of the first month I owe $376,718. Now, I'm a great man, I'm not going to default on my mortgage so I make that first home mortgage 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, remember, I started 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 probably saying, hello, gee, I made a $2,000 payment, an Click to find out more approximately a $2,000 payment and my equity just went up by $410,000.
So, that very, in the start, your payment, your $2,000 payment is mostly interest. Only $410 of it is primary. However as you, and then you, and after that, 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 loan again. This is my new loan balance. And notice, 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 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 specific, this is precisely our mortgage payment, this $2,129. Now, on that extremely first month you saw that of my $2,100 only $400 of it, this is the $400, just $400 of it went to actually pay for the principal, the actual loan quantity.
Many of it chose the interest of the month. However as I start paying down the loan, as the loan balance gets smaller sized 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, there, that last month there was less interest so more of my $2,100 really goes to settle the loan.
Now, the last thing I desire to talk about 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 organizers or realtors tell you, hey, the advantage of buying your house 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 really clear with what deductible ways. So, let's for circumstances, discuss the interest fees. 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 even more and further monthly I get a smaller and smaller tax-deductible portion of my real home mortgage payment. Out here the tax reduction is in fact very little. As I'm preparing to settle my whole home loan 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 make up a number, I didn't compute it on the spreadsheet. Let's say https://www.slideserve.com/weylad7n7i/how-much-does-timeshare-exit-team-cost-powerpoint-ppt-presentation 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 state before 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 say 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 be about $35,000 in taxes for that year. Just, this is simply a rough quote. Now, when you state that $10,000 is tax-deductible, the interest is tax-deductible, that does not imply that I can just take it from the $35,000 that I would have usually owed and only paid $25,000.