And we're presuming that it deserves $500,000. We are assuming that it deserves $500,000. That is an asset. It's a property because it provides you future advantage, the future benefit of being able to reside in it. Now, there's a liability against that possession, that's the home mortgage loan, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your properties and this is all of your financial obligation and if you were basically to offer the possessions and settle the financial obligation. If you offer your house you 'd get the title, you can get the cash and after that you pay it back to the bank.
But if you were to unwind 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 debt and you would get in your pocket $125,000, which is precisely what your original down payment was however this is your equity.
However you might not assume it's continuous and have fun with the spreadsheet a bit. But 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, let's say eventually this is just $300,000, then my equity is going to get larger.
Now, what I have actually done here is, well, really prior to I get to the chart, let me really reveal you how I calculate the chart and I do this throughout thirty years and it passes month. So, so you can imagine 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 reveal here, you borrowed $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 mortgage payments yet.
So, now before I pay any of my payments, rather of owing https://www.4shared.com/office/4nFR_j0dea/352320.html $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 mortgage so I make that first home 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, remember, 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 actually gone up by exactly $410. Now, you're probably stating, hey, gee, I made a $2,000 payment, an approximately 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. Just $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 brand-new prepayment balance. I pay my home loan once again. This is my new loan balance. And notification, already by month 2, $2.00 more went to primary and $2.00 less went to interest. And throughout 360 months you're visiting that it's a real, substantial difference.
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 precise, this is precisely 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 in fact pay for the principal, the actual loan amount.
The majority of it opted for the interest of the month. But as I begin 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 state if we head out here, this is month 198, over there, that last month there was less interest so more of my $2,100 in fact goes to settle the loan.
Now, the last thing I wish to talk about in this video without making it too long is this idea of a interest tax deduction. So, a great deal of times you'll hear monetary organizers or realtors inform you, hey, the advantage of buying your home 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 desire to be very clear with what deductible ways. So, let's for circumstances, speak about the Check out here interest charges. 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 and smaller tax-deductible part of my actual home loan payment. Out here the tax reduction is actually really small. As I'm preparing to settle my entire home loan and get the title of my home.
This does not indicate, let's say that, let's say 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 calculate 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 say $10,000 went to interest. To say this deductible, and let's state prior to this, let's state 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 mortgage I would pay 35 percent taxes which would have to do with $35,000 in taxes for that year. Just, this is just a rough quote. Now, when you state 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.