However, leverage works both ways. In 2008, many people had underwater mortgages, meaning they owed more than the equity they had. Let’s use the same example of $200,000 down on a $1,000,000 home. This time, the home decreased in value by 25% to $750,000. Your equity in the home would then be -$50,000. If you sold your home, you would not only be out $200,000, but you would still owe the bank $50,000.
I know many people who have enjoyed the growth of real estate recently and have low-interest mortgages. Sometimes, investors in these cases are in a rush to pay off their mortgages. If you have sufficient equity in your home , there is a good argument to be made for keeping that debt on your balance sheet.
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