Which term refers to the use of borrowed money to increase potential investment returns?

Leverage refers to the practice of using borrowed funds to increase the potential return on an investment. By using other people’s money, such as through loans or mortgages, an investor can purchase more assets than they would be able to with only their own capital. This strategy allows for a higher potential upside since any returns on the total investment can exceed the cost of borrowing, thereby amplifying the gains. However, it also involves increased risk, as losses can similarly be magnified if the investment does not perform as expected.

In this context, the term accurately describes how investors enhance their investment capacity and potential profits through debt. Other terms such as mortgage, which specifically refers to the loan used to purchase property, and equity, which indicates ownership value, do not encapsulate the broader strategy of utilizing borrowed funds for investment returns. Investment itself is too general, as it does not specifically imply the use of borrowed money. Therefore, leverage is the precise term that encompasses this financial strategy.