How Mortgage Leverage Multiplies Homeowner ROI

Q: With home prices going up so much, do you think buying a home is still a good investment? Valerie, Linden, NJ

A: If you can reasonably afford to buy a home based on your current financial position, it’s difficult to beat the awesome power of leverage when you buy a home with a 30 year fixed mortgage. Mortgage leverage magnifies home appreciation unlike any other asset. You can borrow most of the purchase price for a home which amplifies your cash-on-cash return. Home prices in NJ rise on average about 4-5% annually. So, if you buy a $500,000 home with a 20% down payment of $100,000, the $20,000-$25,000 average annual increase in your home’s value works out to a massive 20-25% annual return on your $100,000 investment! Thanks for your question, Valerie.