And we're assuming that it deserves $500,000. We are presuming that it deserves $500,000. That is a property. It's an asset since it provides you future benefit, the future benefit of having the ability to reside in it. Now, there's a liability against that property, 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 financial obligation and if you were essentially to sell the assets and pay off the financial obligation. If you sell your 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 unwind this deal instantly 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 precisely what your original down payment was but this is your equity.
But you might not presume it's constant and play with the spreadsheet a little bit. However I, what I would, I'm presenting this since as we pay for the debt this number is going to get smaller. So, this number is getting smaller, let's state at some point this is only $300,000, then my equity is going to get larger.
Now, what I've done here is, well, in fact prior to I get to the chart, let me actually show you how I calculate the chart and I do this over the course of 30 years and it passes month. So, so you can envision 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 don't show 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 Click to find out more is $1,718.75. So, I haven't 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 loan so I make that first home mortgage payment that we computed, 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 first payment I now have $125,410 in equity. So, my equity has gone up by precisely $410. Now, you're probably stating, hey, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity just increased by $410,000.
So, that extremely, in the start, your payment, your $2,000 payment is primarily interest. Only $410 of it is principal. 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 mortgage once again. This is my new loan balance. And notification, already by month two, $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, large distinction.
This is the interest and principal parts of our 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 discover, this is the exact, this is exactly our mortgage 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, just $400 of it went to in fact pay down the principal, the actual loan amount.
The majority 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, 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 really goes to settle the loan.
Now, the last thing I wish to speak 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 coordinators or realtors inform you, hey, the benefit of purchasing 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 desire to be really clear with what deductible methods. So, let's for example, 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 great deal of that is interest.
That $1,700 is tax-deductible. Now, as we go further and further monthly I get a smaller sized and smaller sized tax-deductible part of my real mortgage payment. Out here the tax deduction is actually very little. As I'm getting ready to settle my whole mortgage and get the title of my home.
This doesn't mean, let's state that, let's state in one year, let's state in one year I paid, I do not understand, I'm going to comprise a number, I didn't determine 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 state $10,000 went to interest. To state this deductible, and let's https://app.box.com/s/uxx92u8z505bu3rjktajjtfe0ww7uw7f state 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 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. Just, this is simply a rough estimate. Now, when you state that $10,000 is tax-deductible, the interest is tax-deductible, that does not imply that I can simply take it from the $35,000 that I would have usually owed and only paid $25,000.