🏦 With Leverage Making a Comeback: Borrowing Smart in a Lower-Rate Era

Admittedly, this article might be a few months early, but I’d rather share this with you ahead of time than after it’s too late.

Recent rate cuts are refocusing real estate buyers’ attention on borrowing again. At lower interest rates, loans become more compelling—especially in real estate. But before you act, it’s critical to understand exactly how mortgages work and where the risks lie.

📉 Why Lower Rates Make Leverage Attractive Again

• Lower borrowing costs quite simply reduce the monthly cost to own a home

• Properties that were “barely affordable” for an owner-occupant—or “barely worked” for an investor—at higher rates may suddenly become viable

• In a rising-inflation environment, real estate acts as a partial hedge—debt becomes cheaper in real terms because you’re paying back the loan with future dollars

• Smart investors often get in early, anticipating others will follow once momentum builds

But leverage is a tool—not a magic wand.

⚠️ The Hidden Cost: Front-Loaded Interest in 30-Year Loans

If you’re looking to purchase a new home vs. refinancing an existing loan you have at a higher rate, the only real risk is that more buyers flood into the market and drive up the purchase price while you wait for rates to drop.

Here’s where many people slip up: with a 30-year fixed mortgage, your early payments are heavily weighted toward interest, not principal.

• Because the principal balance is highest in year one, most of your payment goes toward interest in the first several years

• You gradually shift to paying more principal as time goes on

• For more on this, check out the Freddie Mac amortization chart

So if you refinance and “reset” the clock back to 30 years again, you could increase your total interest paid—and in some cases, increase the lifetime cost of the home—unless the new lower rate saves you substantially.

Bottom line: Refinancing only makes sense if your new rate lowers the interest burden enough to offset the cost of starting over on interest-heavy payments.

🏡 What I’m Doing (and What You Should Consider)

I’ve personally begun repositioning parts of my portfolio with this in mind. When older properties no longer deliver acceptable returns, I use one of two strategies:

1. 1031 exchanges or strategic refinancing (where it makes sense) to move into assets that:

• Yield cash flow today

• Have appreciation upside

• Can be refinanced in the future at better terms

2. Refinance—but with a shorter term.For example, if I’ve been paying down a 30-year loan at close to 7% and now have the opportunity to lock in a rate closer to 6%, I’ll look to see how much the payment would change by moving to a 20-year or even a 15-year loan.

In some cases, combining the above strategies can create a real win. Yes, my cash flow might not be as high with a shorter loan term, but the principal is paid down faster—building equity quicker and improving overall ROI.

💡 What You Should Ask Yourself Before Leveraging Now

1. How much of my current mortgage payment already goes toward interest vs. principal?

2. If I refinance, will the new rate reduce my interest cost enough to justify restarting most payments as interest?

3. Do my projections assume property appreciation and rent growth?

4. Am I comfortable with less “wiggle room” if cash flow is thinner in colder months or downturns?

5. Would a new loan, with a shorter term, make more sense?

   
   

🧭 Final Thought

Lower rates are a once-in-a-cycle opportunity—especially for real estate leverage. But they demand discipline, not greed.

Used well, leverage can magnify returns.Used carelessly, it can magnify losses.

If you’d like to run through some scenarios or walk through whether refinancing in the next 3–12 months makes sense for your goals, let’s connect. I’ll help you make sure the math works before making a move.