And we're assuming that it's worth Website link $500,000. We are presuming that it deserves $500,000. That is an asset. It's a possession since it provides you future benefit, the future benefit of being able to reside in it. Now, there's a liability against that property, that's the mortgage, 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 essentially to sell the assets and settle the financial obligation. If you sell 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 relax this transaction 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 precisely what your initial down payment was however this is your equity.
However you could not assume it's constant and have fun 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. So, this number is getting smaller, let's state at some time this is just $300,000, then my equity is going to get larger.
Now, what I have actually done here is, well, actually prior to I get to the chart, let me in fact reveal you how I calculate the chart and I do this throughout thirty years and it passes month. So, so you can envision 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 do not show here, you borrowed $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 haven't made any home loan payments yet.
So, now prior https://www.scribd.com/document/475253116/169913how-to-sell-my-timeshare to 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 great guy, I'm not going to default on my mortgage so I make that first home mortgage payment that we computed, 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 first payment I now have $125,410 in equity. So, my equity has actually increased by exactly $410. Now, you're probably stating, hello, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity only went up by $410,000.
So, that extremely, in the beginning, your payment, your $2,000 payment is mostly interest. Only $410 of it is primary. However as you, and then you, and then, 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 mortgage 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 visiting that it's an actual, large distinction.
This is the interest and primary portions of our home loan 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 notice, this is the specific, this is exactly 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 quantity.
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, 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 pay off the loan.
Now, the last thing I want 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 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 ways. So, let's for example, talk about the interest costs. 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 each month I get a smaller and smaller tax-deductible part of my actual home mortgage payment. Out here the tax deduction is really extremely small. As I'm getting ready to settle my entire mortgage and get the title of my house.
This does not indicate, let's state that, let's say in one year, let's state in one year I paid, I do not understand, I'm going to make up a number, I didn't compute 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 say $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 state I was paying roughly 35 percent on that $100,000.
Let's say, you understand, if I didn't have this home loan 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 estimate. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not mean that I can simply take it from the $35,000 that I would have normally owed and just paid $25,000.