And we're assuming that it deserves $500,000. We are presuming that it deserves $500,000. That is a possession. It's a possession because it gives you future benefit, the future benefit of having the ability to live in it. Now, there's a liability versus that asset, that's the home 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 properties and pay off the debt. If you offer your house you 'd get the title, you can get the money and then you pay it back to the bank.
But if you were to unwind this deal immediately after doing it then you would have, you would have a $500,000 house, you 'd settle your $375,000 in financial obligation and you would get in your pocket $125,000, which is exactly what your original down payment was however this is your equity.
But you might not assume it's continuous and play with the spreadsheet a little bit. But I, what I would, I'm presenting this due to the fact that as we pay for the financial obligation this number is going to get smaller sized. So, this number is getting smaller, let's state eventually this is only $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 in fact reveal you how I calculate the chart and I do this over the course of thirty years and it passes month. So, so you can think of 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 no, which I do not show here, you obtained $375,000. Now, over the course of that month they're going to charge you 0.46 percent 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 have not made any home loan payments yet.
So, now before 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 an excellent guy, I'm not going to default on my home loan 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, 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 increased 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 just increased by $410,000.
So, that very, in the start, your payment, your $2,000 payment is mostly interest. Only $410 of it is principal. But as you, and after that you, and then, 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 once again. This is my brand-new loan balance. And notification, currently by month 2, $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 an actual, large difference.
This is the interest and principal portions of our home loan payment. So, this whole height right here, this is, let https://www.slideserve.com/weylad7n7i/how-much-does-timeshare-exit-team-cost-powerpoint-ppt-presentation me scroll down a bit, this is by month. So, this entire height, if you notice, this is the specific, this is precisely our home loan payment, this $2,129. Now, on that really first month you saw that of my $2,100 just $400 of it, this is the $400, only $400 of it went to actually pay down the principal, the actual loan quantity.
Many of it chose the interest of the month. But as I start paying down the loan, as the loan Click for more info 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 head out here, this is month 198, 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 discuss in this video without making it too long is this concept of a interest tax reduction. So, a great deal of times you'll hear financial planners or realtors inform you, hey, the advantage of purchasing your home is that it, it's, it has tax advantages, 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, speak 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 beginning a lot of that is interest.
That $1,700 is tax-deductible. Now, as we go further and even more monthly I get a smaller and smaller tax-deductible part of my real mortgage payment. Out here the tax deduction is in fact very little. As I'm preparing yourself to settle my entire mortgage and get the title of my home.
This doesn't imply, let's state that, let's state in one year, let's say 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 state 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 say this deductible, and let's state before this, let's say before 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 roughly 35 percent on that $100,000.
Let's state, you understand, if I didn't have this home mortgage I would pay 35 percent taxes which would be about $35,000 in taxes for that year. Simply, this is just 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 normally owed and just paid $25,000.