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For investors who hold properties for the long term, you can see how mortgages that have seasoned for many years begin to accrue equity at an accelerated pace the closer you get to loan maturity.Even at a Constant Rate of Appreciation, Equity Accumulation Grows at an Increasing RateEquity (attributed to principal pay down) increases at an accelerated rate because of the way amortization works (as discussed above), but equity also increases at an accelerated rate because of appreciation. Now, some will argue that you shouldn’t bank on appreciation when buying property, but I simply disagree. If you look at long term trends, property always has and always will increase in value. Yes, there are dips and market cycles, but over the long term, property general appreciates.For the sake of this argument, let’s say that the market you are buying in has seen a 3% appreciation rate over the long term. Even at a constant rate of appreciation, your yearly value increases are not constant, they are steadily increasing. For example, if you buy a $100,000 property and it appreciates 3% in the first year, your property will be worth $103,000 in the second year (an increase of $3,000). However, in the second year, that 3% appreciation applies to $103,000 now which would equal an increase of $3,090. More than the value increase in the first year. By year ten, the property is worth $130,477.30, and in that year the property increased in value by $3,914 (compared to only $3,000 in the first year).
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