And we're presuming that it deserves $500,000. We are presuming that it deserves $500,000. That is an asset. It's a possession since it gives you future advantage, the future benefit of being able to live in it. Now, there's a liability against that possession, 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 debt and if you were essentially to sell the assets 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 relax this transaction 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 exactly what your original deposit was but this is your equity.
However you might not assume it's consistent and have fun with the spreadsheet a bit. However 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 state 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 in fact reveal you how I compute the chart and I do this throughout thirty years and it passes month. So, so you can envision 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 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, remember 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, rather of owing $375,000 at the end of the very first month I owe $376,718. Now, I'm a hero, 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 gone up by exactly $410. Now, you're probably saying, hello, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity just went Check out the post right here up by $410,000.
So, that very, in the start, your payment, your $2,000 payment is mainly interest. Only $410 of it is primary. However as you, and then you, and then, so as your loan balance goes down 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 home mortgage once again. This is my brand-new loan balance. And notice, already by month two, $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 difference.
This is the interest and principal parts of our home loan 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 discover, this is the specific, this is exactly our mortgage payment, this $2,129. Now, on that extremely first month you saw that of my $2,100 just $400 of it, this is the $400, only $400 of it went to in fact pay down the principal, the actual loan quantity.
The majority of it opted for the interest of the month. But as I start 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 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 really goes to settle the loan.
Now, the last thing I want to talk about in this video without making it too long is this concept of a interest tax deduction. So, a lot of times you'll hear financial coordinators 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 really clear with what deductible ways. So, let's for circumstances, discuss the interest charges. So, this whole time over thirty 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 even more and further monthly I get a smaller and smaller tax-deductible part of my actual home loan payment. Out here the tax deduction is actually extremely little. As I'm getting ready to pay off my whole home loan and get the title of my house.
This does not indicate, let's state that, let's state in one year, let's state in one year I paid, I do not know, 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 state this deductible, and let's state before this, let's state prior to 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 roughly 35 percent on that $100,000.
Let's state, 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 just a rough price quote. Now, when you state 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.