When you own a home, it is so much more than the address where you get your mail. It is where you raise your family, a place to share with friends, and where you make memories. Your pride of ownership will be evident in your landscaping, in the color of the walls, and the type of flooring – you can put your personal touch in every room. It also provides you and your family with a safe and secure place to call your own.
It is also one of the largest investments you will make.
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. As your home’s value increases, your equity increases and your loan to value ratio increase – this defines positive leverage. In turn, these increases create a rate of return on your investment of the down payment and closings costs you incurred when you purchased your home.
The included chart 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 payment amount will affect the yield.
When you choose where to live, whether to rent or buy the home you occupy, it really boils down to if you are going to purchase for yourself or for the landlord. Review my Calculations of Ownership versus Renting.
Carol Murphy
Keller Williams, Greater Cleveland ~ Carol Murphy Team
Avon Lake Homes For Sale