And we're presuming that it's worth $500,000. We are assuming that it deserves $500,000. That is an asset. It's a possession since it provides you future advantage, the future advantage of having the ability to reside in it. Now, there's a liability versus that property, that's the mortgage, 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 basically to offer the possessions and pay off the debt. If you sell your home you 'd get the title, you can get the cash and then you pay it back to the bank.
But if you were to relax this deal immediately 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 precisely what your initial deposit was but this is your equity.
But you might not presume it's consistent and play with the spreadsheet a little bit. However I, what I would, I'm introducing this since 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 point this is only $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 really 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 think of that there's really 360 rows here on the real spreadsheet and you'll see that if you go and open it up.
So, on month absolutely no, which I do not reveal here, you obtained $375,000. Now, throughout that month they're going to charge you 0.46 percent interest, bear in mind 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, 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 very first 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, keep in mind, I started 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 increased by precisely $410. Now, you're probably stating, hello, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity only went up by $410,000.
So, that very, in the start, your payment, your https://finnsvac136.skyrock.com/3335351756-how-much-is-a-wyndham-timeshare.html $2,000 payment is mainly interest. Only $410 of it is principal. But as you, and then you, and after that, 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 mortgage once again. This is my new loan balance. And notice, currently by month 2, $2.00 more went to primary and $2.00 less went to interest. And throughout 360 months you're visiting that it's a real, large distinction.
This is the interest and primary 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 notice, this is the exact, this is precisely our mortgage 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 really pay for the principal, the actual loan amount.
The majority of it opted 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 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 actually goes to pay off the loan.
Now, the last thing I wish to speak 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 financial planners or realtors tell you, hey, the benefit of buying your home 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 very clear with what deductible methods. So, let's for example, 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 even more and further every month I get a smaller and smaller sized tax-deductible portion of my actual home mortgage payment. Out here the tax reduction is in fact really small. As I'm preparing to settle my whole mortgage and get the title of my house.
This doesn't suggest, let's state that, let's say in one year, let's say 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 state $10,000 went to interest. To say this deductible, and let's say prior to this, let's state 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 say 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. Just, this is just 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 simply take it from the $35,000 that I would have normally owed and just paid $25,000.