And we're assuming that it deserves $500,000. We are presuming that it deserves $500,000. That is a property. It's a property because it provides you future benefit, the future advantage of having the ability to live in it. Now, there's a liability against that possession, that's the mortgage, that's the $375,000 liability, $375,000 loan or financial obligation.
If this was all of your properties and this is all of your debt and if you were basically to sell the properties and settle the financial obligation. If you sell the 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 transaction instantly after doing it then you would have, you would have a $500,000 home, you 'd settle your $375,000 in financial obligation and you would get in your pocket $125,000, which is exactly what your initial deposit was but this is your equity.
However you could not presume it's consistent and play with the spreadsheet a bit. However I, what I would, I'm introducing 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 just $300,000, then my equity is going to get larger.
Now, what I've done here is, well, really before I get to the chart, let me actually show 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 really 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 do not show 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 haven't made any 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 good man, I'm not going to default on my home loan so I make that first home mortgage payment that we computed, that we calculated 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 very first payment I now have $125,410 in equity. So, my equity has gone up by exactly $410. Now, you're most likely stating, hey, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity only went up by $410,000.
So, that very, in the start, your payment, your $2,000 payment is primarily interest. Only $410 of it is primary. However 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 brand-new prepayment balance. I pay my home loan again. This is my brand-new loan balance. And notice, currently 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, sizable distinction.
This is the interest and principal parts 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 whole height, if you observe, this is the exact, this is precisely our home loan payment, this $2,129. Now, on that very first month you saw that of my $2,100 only $400 of it, this is the $400, only $400 of it went to really pay for the principal, https://kameronfgui199.wordpress.com/2020/09/06/how-to-buy-a-timeshare-resale/ the real loan quantity.
The majority of it went for the interest of the month. But as I begin 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 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 talk 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 monetary coordinators or realtors inform you, hey, the advantage of purchasing your house is that it, it's, it has tax benefits, and it does.
Your interest, not your entire payment. Your interest is tax deductible, deductible. And I wish to be very clear with what deductible means. So, let's for circumstances, talk about the interest fees. So, this entire time over 30 years I am paying $2,100 a month or $2,129.29 a month. Now, at the starting a lot 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 tax-deductible portion of my actual home mortgage payment. Out here the tax deduction is in fact really little. As I'm preparing yourself to pay off my entire home loan and get the title of my house.
This doesn't suggest, let's say that, let's say in one year, let's say in one year I paid, I don't understand, I'm going to make 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, but let's state $10,000 went to interest. To say this deductible, and let's state prior to this, let's say 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 state 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 be about $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 suggest that I can simply take it from the $35,000 that I would have generally owed and just paid $25,000.