And we're assuming that it's worth $500,000. We are assuming that it deserves $500,000. That is an asset. It's a property since it offers you future advantage, the future advantage of having the ability to reside in it. Now, there's a liability versus that asset, that's the home loan, 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 financial obligation and if you were basically to sell the assets and settle the debt. 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.
However if you were to unwind 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 deposit was but this is your equity.
But you could not presume it's continuous and play with the spreadsheet a little bit. However I, what I would, I'm introducing this since as we pay for the debt this number is going to get smaller. So, this number is getting smaller sized, let's say at some time this is only $300,000, then my equity is going to get bigger.
Now, what I've 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 over the course of 30 years and it goes by month. So, so you can envision that there's in fact 360 rows here on the actual spreadsheet and you'll see that if you https://karanaujlamusicvl2ho.wixsite.com/messiahhzwx132/post/how-do-i-get-a-free-timeshare-vacation go and open it up.
So, on month no, which I do not show here, you obtained $375,000. Now, over the course of 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 have not made any mortgage payments yet.
So, now before 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 guy, I'm not going to default on my mortgage so I make that first home loan payment that we calculated, that we computed 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 increased by exactly $410. Now, you're probably saying, hi, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity just went up by $410,000.
So, that very, in the beginning, your payment, your $2,000 payment is mostly interest. Just $410 of it is principal. But 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 home mortgage again. This is my new loan balance. And notification, 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, substantial difference.
This is the interest and principal 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 whole height, if you see, this is the exact, this is exactly our home mortgage payment, this $2,129. Now, on that very first month you saw that of my $2,100 just $400 of it, this is the $400, only $400 of it went to actually pay for the principal, the real loan amount.
The majority of it chose the interest of the month. But as I start paying for the loan, as the loan balance gets smaller sized and smaller sized, 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 go 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 discuss 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 tell you, hey, the benefit of purchasing your house 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 wish to be extremely clear with what deductible means. So, let's for circumstances, talk about 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 lot of that is interest.
That $1,700 is tax-deductible. Now, as we go further and further every month I get a smaller sized and smaller sized tax-deductible portion of my actual mortgage payment. Out here the tax deduction is really very small. As I'm getting all set to settle my entire home mortgage and get the title of my home.
This doesn't indicate, let's say that, let's say in one year, let's state in one year I paid, I don't understand, I'm going to comprise 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 say $10,000 went to interest. To say this deductible, and let's say prior to 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 mortgage I would pay 35 percent taxes which would be about $35,000 in taxes for that year. Just, this is just a rough quote. Now, when you say 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 typically owed and just paid $25,000.