Mechanics
10% price rise on a home bought with 20% down is roughly a 50% gain on equity before costs—not tax or selling friction. The same leverage cuts equity fast if prices fall.
Why lenders care
Loan-to-value (LTV) measures cushion for the bank. Your cushion is the equity slice that absorbs volatility before the lender is impaired.
See amortization
Mistakes
- Max leverage with razor-thin rental cash flow.
- Assuming refinance will always bail out a bad purchase.
Use the calculator
FAQ
- Is leverage bad?
It is a tool. Risky when cash flow and reserves are weak; useful when margins and timeline are sensible.