our long-term savings rate and the amount of equity we are willing to put down to buy a house.
This chart is from the 2007 Housing Cycle, a widely used tool showing the relationship between long-term house price inflation and the amount of equity one can put down to buy a home over the next five years. Over the past decade, the chart has shown a slight but consistent positive correlation between the two variables. If your goal is to build equity, it’s very important to keep your long-term savings rate low.
Again, its important to keep your long-term savings rate low because it has a negative impact on your housing investment demand curve. If your long-term savings rate (or percentage of your net worth) is low, you might be undervalued. In this case, the house you’re buying will be more expensive than the house you could have bought if you had put down the money earlier.
When it comes to finding a short-term, low-savings, high-loan investment, the investment demand curve is very important. A low long-term savings rate can make for a very low risk, high-loan investment. A high long-term savings rate can make for a very low risk, low-loan investment. The more savings you have, the more risk you have of not having enough money to pay for anything and the more your debt ratio will rise.
This is why the curve is important. Because if you look at it as a function of the long-term interest rate, you will see that the slope of the curve is very steep. In other words, the more you have available to you to invest (which is a savings rate) the more risky it is to invest in that direction. Remember, the longer it takes for you to pay off your debt, the higher interest rate you pay.
We see this reflected in the investment demand curve which is a line graph that plots the rate of return you receive on your money over the time it will take to pay back all the interest you have on your debt. In the graph, the slope of the curve is the long-term interest rate because it is proportional to the total amount of money you have available. So as you pay off your debt, the slope of the curve will increase.
If you’re considering investing in real estate, then you have to consider how debt affects your overall investment decision. The longer you hold debt, the higher the interest rate you pay. In fact, it’s very common for someone to get a loan for $100,000 and pay it back in 5 years, then get a second loan for $100,000 and pay it back in 10 years. So at the margin, paying back $100,000 in 5 years might be worth it.
The longer you hold debt, the higher your interest rate. Here’s the curve for someone who holds a fixed amount of debt.
So, in the short term, looking at the graph below, you can see how debt increases your returns on investments. This is because when you hold debt, you will pay more interest per year because the costs of borrowing are higher. The curve below shows how debt impacts returns on mortgages.
The longer you hold debt, the higher the interest rate. Because, as we all know, your interest rates go up when you pay it back. So if you’re looking to buy a home, you’ll need to pay back your mortgage within 5 years, or else your interest rate will jump to an alarming level. If you pay down your debt faster, your interest rate will come down, and you’ll be able to get a better deal.