| Leverage in finance is the concept of buying an asset with money that's not yours (i.e. a loan). So suppose you have $100, and you believe a stock will increase by 10% in value, then borrowing $900 and buying $1000 of the stock, will leave you with $1100 if your prediction is true. When you pay off the loan, you'll be left with $200, and you will have doubled your money. The loan thereby acts as a leverage multiplying the 10% return on investment to in this case a 100% return on investment. Now imagine that instead of having $100, you have $50k, and instead of borrowing $900, you borrow $450k, and instead of buying stock, you buy a home with the 50k deposit and 450k mortgage. The same applies, the home appreciates 10% to 550k, but your equity increases from $50k to $100k. Again, the mortgage loan acts as a lever. The difference is that most consumers do not have large and cheap capital available to them, say to borrow $450k to invest in the stock market. But most people do have such opportunities to invest in the real estate market with a mortgage. Anyway, wether it's a good investment really depends on many factors. The NYT buy or rent calculator is still one of the best sources to get an intuition on what is best for your circumstance. https://www.nytimes.com/interactive/2024/upshot/buy-rent-cal... |