Home is More Than an Address
Home is More Than an Address

A home is a place to call your own, raise your family, share with your friends and feel safe and secure. It is also one of the largest investments most people have.

Leverage is the ability to control a larger asset with a smaller amount of cash through the use of borrowed funds. It has been described as using other people’s money to increase your yield and it applies to homeowners and investors alike. Positive leverage causes the yield to increase as the loan-to-value increases.

Even a modest amount of appreciation combined with the amortization of a loan can cause a substantial rate of return on the down payment and closing costs.

Homes build equity as the price goes up due to appreciation and the unpaid balance goes down due to amortization.

The example above indicates the yield on a home considering 3% acquisition costs on the home with a 4.5% mortgage rate and the resulting equity at the end of five years. The different down payments will affect the yield based on the leverage effect.

Whether you rent or buy the home you live in, you pay for what you occupy. The question a person is faced with is whether they are going to buy it for themselves or their landlord.

 

Home Appreciation
Home Appreciation

About the author

Tom Ashworth

- Realtor

Tom is a hard-working real estate agent with Central Metro Realty in Burnet Texas. He specializes in first time home buyers, helping sellers save money and helping buyers find their dream home in the Texas Hill Country area. Tom draws on his knowledge of the Central Texas real estate market, communities and local contacts to find clients the property that truly meets their objectives. Tom lives in Burnet Texas and enjoys outdoor recreation and billiards. Tom can be reached at (208)830-7991. Horseshoe Bay Texas.

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