One
of the greatest financial aspects of buying
a home is the ability to leverage your money.
Simply put, leverage allows you to use a small
down payment and financing to purchase a larger
investment. For example, if you bought a $125,000
home with 10 percent down, you leveraged the
$12,500 down payment to purchase an asset worth
10 times that amount!
Appreciation
The benefits of leverage really become apparent
with appreciation, or the rise in value of
a property. Using the above example, say you
were to live in the house for 5 years, and
during that time property values in your area
were to rise an average of 2.5 percent a year.
Your home would then be worth over $141,000.
By putting only 10 percent down, you get to
enjoy the appreciation for the full amount!
Paying
yourself
In addition to the 10 percent down, you'll
also have to make mortgage payments. But with
each payment, a certain amount of money is
being used to pay down the principal balance
that you owe. This is called building equity.
So in the event you sell your house, not only
can you realize a profit from your leveraged
money, you also have a chance to pay yourself
back for the money you've put in over the
years. No wonder so many people consider a
home an excellent investment!
