And we're assuming that it's worth $500,000. We are presuming that it deserves $500,000. That is a property. It's an asset since it provides you future benefit, the future advantage of having the ability to live in it. Now, there's a liability versus that asset, 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 basically to sell the properties and settle the financial obligation. If you offer your house you 'd get the title, you can get the cash and then you pay it back to the bank.
But if you were to unwind this deal instantly after doing it then you would have, you would have a $500,000 house, 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 however this is your equity.
But you might not assume it's consistent and play with the spreadsheet a bit. But I, what I would, I'm introducing this because as we pay for the financial obligation this number is going to get smaller sized. So, this number is getting smaller sized, let's say 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, in fact before I get to the chart, let me in fact show you how I calculate the chart and I do this throughout thirty years and it goes by month. So, so you can imagine 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 reveal 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 home mortgage payments yet.
So, now prior 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 person, I'm not going to default on my mortgage so I make that very first 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 very first payment I now have $125,410 in equity. So, my equity has actually gone up by exactly $410. Now, you're probably saying, hi, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity just went up by $410,000.
So, that extremely, in the beginning, your payment, your $2,000 payment is primarily interest. Only $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 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, already by month two, $2.00 more went to principal and $2.00 less went to interest. And over the course of 360 months you're going to see that it's a real, large difference.
This is the interest and principal parts of our mortgage payment. So, this entire height right here, this is, let me scroll down a bit, this is by month. So, this whole height, if you see, this is the precise, 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, just $400 of it went to actually pay for the principal, the actual loan amount.
Many of it went for the interest of the month. But as I start paying for the loan, as the loan balance gets smaller and smaller, 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 go out here, this is month 198, over there, that last month there was less interest so more of my $2,100 actually goes to settle the loan.
Now, the last thing I wish to discuss 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 planners or real estate agents inform you, hey, the benefit 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 want to be extremely clear with what deductible ways. So, let's for circumstances, speak about the interest charges. 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 great deal of that is interest.
That $1,700 is tax-deductible. Now, as we go even more and even more every month I get a smaller and smaller tax-deductible portion of my real home loan payment. Out here the tax deduction is in fact really little. As I'm getting ready to settle my entire home loan and get the title of my home.
This does not mean, let's state that, let's state in one year, let's state 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 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 http://gregoryuwpf202.jigsy.com/entries/general/how-to-buy-a-timeshare-cheap went to interest. To say 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 state I was paying roughly 35 percent on that $100,000.
Let's state, you know, if I didn't have this home loan 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 imply that I can just take it from the $35,000 that I would have generally owed and only paid $25,000.