And we're presuming that it deserves $500,000. We are assuming that it's worth $500,000. That is a possession. It's a property since it provides you future advantage, the future benefit of having the ability to reside in it. Now, there's a liability against 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 debt and if you were basically to sell the properties and pay off the debt. If you offer your house 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 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 exactly what your original down payment was however this is your equity.
However you could not presume it's consistent and have fun with the spreadsheet a bit. But 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 sized, let's say at some point this is only $300,000, then my equity is going to get larger.
Now, what I've done here is, well, actually before I get to the chart, let me in fact show you how I determine the chart and I do this throughout thirty years and it passes month. So, so you can envision that there's in fact 360 rows here on the actual 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, 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 home loan payments yet.
So, now prior to I http://rylangwcn099.iamarrows.com/how-to-get-out-of-timeshare-contract 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 mortgage payment that we determined, 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 began 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 actually gone up by precisely $410. Now, you're probably stating, hey, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity only increased by $410,000.
So, that extremely, in the beginning, your payment, your $2,000 payment is mainly interest. Only $410 of it is primary. However as you, and after that you, and after that, 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 mortgage once again. This is my new loan balance. And notification, already by month 2, $2.00 more went to principal and $2.00 less went to interest. And throughout 360 months you're visiting that it's an actual, large distinction.
This is the interest and principal portions of our 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 observe, this is the precise, 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 really pay for 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 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 go 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 want to discuss in this video without making it too long is this idea of a interest tax reduction. So, a great deal of times you'll hear monetary planners or realtors tell you, hey, the advantage of purchasing 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 very clear with what deductible means. So, let's for example, discuss the interest charges. So, this whole time over thirty years I am paying $2,100 a month or $2,129.29 a month. Now, at the beginning a great deal of that is interest.
That $1,700 is tax-deductible. Now, as we go even more and even more each month I get a smaller and smaller sized tax-deductible part of my actual home mortgage payment. Out here the tax deduction is actually very little. As I'm preparing to pay off my whole home loan and get the title of my house.
This does not indicate, let's state 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 calculate 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 say $10,000 went to interest. To say this deductible, and let's state before 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 say I was paying approximately 35 percent on that $100,000.
Let's state, you understand, if I didn't have this mortgage I would pay 35 percent taxes which would have to do with $35,000 in taxes for that year. Simply, this is simply a rough quote. Now, when you say 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.