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Leverage still outperforms fixed interest payments. Rising home prices compound on previous years’ appreciation. Your leverage rides on the back of this compoun
by jonkho 8y ago
Leverage still outperforms fixed interest payments. Rising home prices compound on previous years’ appreciation. Your leverage rides on the back of this compounding. In contrast, your interest payments are fixed on the value of the dollars the year the loan was written.
- phamilton 8y agoAhh... Great point!
- conanbatt 8y agoThis was particularly true in the past, but i wouldnt bet much on this effect nowadays. Inflation is the true way to get this effect, but the dollar hasnt suffered inflation in decades. The new effect we have is asset inflation: sure you payed 3% for this house, but this house cost a lot more. When interest rates raise, mortgages are more expensive but house values go down. It is said that its better to buy in a high interest rate period at a low value, than a low interest rate at high value: in the former, you can re-fi later.