Leverage allows you to use a small down payment and financing to purchase a larger investment. Purchasing a $125,000 home with 10 percent downpayment, you leveraged the $12,500 down payment to purchase an asset worth 10 times that amount.
The benefits of leverage really become apparent with appreciation, the rise in value of a property. Over the 5 years you've lived in the home you purchased for $125,000 area property values have risen an average of 2.5 percent a year. Your home would then be worth over $141,000.
In addition to the downpayment, you'll be making mortgage payments. But with each payment you're building equity by paying a portion toward the principal balance. In the event you sell your home, 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!
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