And we're assuming that it deserves $500,000. We are presuming that it deserves $500,000. That is a property. It's a possession since it gives you future benefit, the future benefit of being able to live in it. Now, there's a liability versus that possession, that's the home 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 financial obligation and if you were basically to offer the assets and settle the financial obligation. If you offer the home 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 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 down payment was however this is your equity.
But you could View website not presume it's consistent and play with the spreadsheet a little bit. However I, what I would, I'm presenting this because as we pay down the financial obligation this number is going to get smaller sized. So, this number is getting smaller sized, let's say eventually this is only $300,000, then my equity is going to get bigger.
Now, what I've done here is, well, actually before I get to the chart, let me actually show you how I determine the chart and I do this throughout 30 years and it passes month. So, so you can think of that there's actually 360 rows here on the actual spreadsheet and you'll see that if you go and open it up.
So, on month 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, 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 mortgage payments yet.
So, now before 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 hero, I'm not going to default on my home mortgage so I make that first home mortgage payment that we calculated, that we calculated 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 first payment I now have $125,410 in equity. So, my equity has actually increased 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 just increased by $410,000.
So, that really, in the beginning, your payment, your $2,000 payment is primarily interest. Just $410 of it is principal. But as you, and after that you, and then, so as your loan balance goes down 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 mortgage once again. This is my new loan balance. And notification, currently 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 an actual, substantial distinction.
This is the interest and primary portions of our home mortgage payment. So, this entire height right here, this is, let me scroll down a bit, this is by month. So, this entire height, if you notice, 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 real loan amount.
Most of it chose the interest of the month. But as I start paying down the loan, as the loan balance gets smaller and smaller, 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 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 in fact goes to pay off the loan.
Now, the last thing I wish to speak about in this video without making it too long is this idea of a interest tax reduction. So, a lot of times you'll hear financial organizers or real estate agents tell you, hey, the advantage 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 means. So, let's for circumstances, discuss the interest fees. 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 even more and further every month I get a smaller and smaller tax-deductible part of my actual home mortgage payment. Out here the tax deduction is actually extremely small. As I'm preparing yourself to pay off my entire home loan and get the title of my home.
This does not suggest, let's say that, let's state in one year, let's state in one year I paid, I do not understand, I'm going to make https://issuu.com/ephardnzi1/docs/168128 up 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, however let's state $10,000 went to interest. To state this deductible, and let's say prior to 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 approximately 35 percent on that $100,000.
Let's say, you understand, 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. Simply, this is simply a rough price quote. Now, when you state that $10,000 is tax-deductible, the interest is tax-deductible, that does not indicate that I can simply take it from the $35,000 that I would have usually owed and only paid $25,000.