And we're assuming that it's worth $500,000. We are assuming that it deserves $500,000. That is a property. It's a possession due to the fact that it gives you future benefit, the future advantage of being able to live in it. Now, there's a liability against that possession, that's the mortgage 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 debt and if you were essentially to sell the assets and settle the debt. If you offer your home 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 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 financial obligation and you would get in your pocket $125,000, which is precisely what your original down payment was however this is your equity.
But you might not assume it's constant and have fun with the spreadsheet a bit. However I, what I would, I'm presenting 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 sized, let's state at some point this is just $300,000, then my equity is going to get bigger.
Now, what I've done here is, well, actually before I get to the chart, let me really show you how I determine the chart and I do this throughout 30 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 reveal here, you obtained $375,000. Now, over the course of 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 haven't 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 good guy, I'm not going to default on my home mortgage so I make that very first home loan payment that we calculated, that we determined right over here.
Now, this right here, what I, little asterisk here, this is my equity now. So, remember, I began 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 gone up by exactly $410. Now, you're most likely stating, hey, gee, I made a $2,000 payment, an approximately a $2,000 payment and my equity just increased by $410,000.
So, that really, in the start, your payment, your $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 check here 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 throughout 360 months you're going to see that it's a real, large difference.
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 whole height, if you see, this is the exact, this is exactly our home loan 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 amount.
Most of it chose the interest of the month. However as I begin 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, over 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 desire to speak about in this video without making it too long is this concept https://www.sendspace.com/file/p41bay of a interest tax reduction. So, a great deal of times you'll hear financial coordinators or realtors inform 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 wish to be very clear with what deductible methods. So, let's for instance, talk 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 starting a great deal of that is interest.
That $1,700 is tax-deductible. Now, as we go even more and further each month I get a smaller and smaller tax-deductible portion of my actual home loan payment. Out here the tax deduction is really very little. As I'm getting prepared to settle my entire mortgage and get the title of my home.
This doesn't mean, 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 make up a number, I didn't compute 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 say this deductible, and let's state prior to this, let's say 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 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. Simply, this is simply a rough quote. Now, when you state that $10,000 is tax-deductible, the interest is tax-deductible, that does not mean that I can just take it from the $35,000 that I would have usually owed and only paid $25,000.