Put simply, leverage – also known as gearing - is borrowing to invest. It’s when you use money you have borrowed, rather than your existing savings, to fund investments you wish to make.
The money you’ve borrowed should help boost your investment income, as long as the returns you get are greater than the costs of borrowing – such as set up fees and interest payments.
In certain cases, you may also receive some tax benefits.
However, the risks are generally greater than if you’d used your own money to invest.
For example, if your investment delivers lower than expected returns, or no returns at all, you’ll still need to pay off your loan, which may put enormous pressure on your finances.
Gearing certainly isn’t for everyone, but your Mortgage Choice Financial Adviser can help you weigh up the risks and returns to see if it will suit you.
Get the right home loan advice at no cost to you. Talk to your local Mortgage Choice broker today.