EQUITY BUILDUP

The gradual reduction of the mortgage loan principal is achieved by the periodic payments made by the borrower. The level of monthly mortgage payments and the pace of principal repayment will depend mostly on the term of the loan, the amount of the loan and the mortgage rate.

It should be noted though that according to typical mortgage amortization schedules for long-term loans, the reduction of the loan principal owed, and therefore the increase of the investor's equity in the property, is very slow in the first 10-15 years. Of course, for shorter-term loans, where the rate of principal repayment is faster, equity buildup is faster, as well.

Equity buildup is a very important component of the benefits offered by leveraged property investments, that is, investments partially financed through borrowed funds. Such benefits are exaggerated when the value of the property increases at a fast pace as the loan is repaid.

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