Have you heard the term “leverage” when people are discussing their investments? This can be quite a confusing and daunting concept for many people. But all leverage really means, is borrowing to invest. The reason people call it “leverage” is because typically existing assets are used as the security or basis of the borrowing. That is, you leverage off the value of a current investment or asset, to borrow more money to invest.

This article is all about the risks and rewards of borrowing to invest, or leveraging investment strategies. The information is general in nature and not intended as specific advice. As always, if you intend borrowing to invest, seek licensed financial advice before you do.

Before I understood money, my debt profile looked very similar to most peoples. I had a credit card which I always struggled to get back to zero, I had a large personal loan for a car I bought and a smaller loan for some furniture.

The problems with these types of debt are two fold. To start with, the items I bought when I borrowed are all depreciating items. That is, their value decreases as they get older. The second thing is, due to the fact that I borrowed to buy things I could use personally, (as opposed to a money making use) I could not claim the interest on the borrowings for tax purposes.

Today, due to the many benefits I found you get when you borrowing to invest, my debt profile is anything but typical. I now have much more debt, but I have borrowed to buy appreciating and income generating assets. For example, I have a massive debt on a property in Victoria, Australia. I also have a reasonable size margin loan helping me make money in a successful stock trading strategy. And finally, as per all foreign exchange trading accounts, I have an account which is leveraged out (and heavily too, at 400:1 – so every $1 I put in allows me to invest $400). My debt on consumables on the other hand is negligible.

Why is it more efficient to use your borrowings for investing then?

Borrowing to invest increases your ability to earn investment returns. Its simple maths really. You have more money to invest because you borrowed some, so when you invest the money wisely, you’ll earn more returns. There is one additional variable to this equation though to keep in mind, the interest on the loan. Your investment strategy must be strong enough that the additional earnings are higher than the interest on the borrowings. Otherwise your net position is actually going backwards. Ie. Overall, you are losing money.

Also, as you are borrowing with the intention of generating an income, there is a direct nexus between the borrowing costs (Ie. interest liabilities) and making money. Therefore, in many cases, the interest payments on these types of borrowed funds are tax deductible. You’ll need to speak to your adviser to confirm this, bt typically this holds true. That means you basically get a discount on your loan. This in itself makes borrowing to invest more financially efficient than borrowing to buy consumer items.

This works exactly the same in the margin loan I am using to help with my stock market investments. I have borrowed some money in a margin loan (I usuall try and keep the leverage here at about 1:1, so every dollar of my own I invest gives me another to invest) and pay interest every month on that loan. My stock market strategy pays me my consistent income every month, which is more than the interest on the margin loan. And then, at the end of the tax year, I deduct the interest payments from the money I earned, gaining a tax advantage.

So there are definite advantages you can gain from leveraging your investments. There are risks also though, which is why you should seek proper financial advice prior to moving down this path.

So what are the risks associated with borrowing for investment purposes? One of the obvious risks relates to your financial capacity. There is the risk you over-extend yourself and cannot meet the repayment obligations on your loans. When taking out a loan, you need to be sure you can pay the loan repayments.

Margin loans are a little bit different. They are set up so you are allowed to borrow a certain proportion of the value of the stocks held in the margin loan. The risk here is that if the value of your stock decreases rapidly and pushes your margin loan outside those boundaries, you will receive a margin call. The margin call will force you to repay a significant part of your margin loan debt, to ensure it is again within the stipulated proportion of your stock values. This can often be difficult as it requires you to fund the debt when you had not budgeted money to do so.

There is alway also the possibility that your trading strategy loses money. If this happens, because you borrowed so you could invest more, you lose more money.

One of the reasons its important to speak to a licensed financial adviser is that these risk can be managed properly with the correct strategy. This will make managing your risk much easier and making money on you borrowing much easier. With the right strategy, leveraging your investments can be extremely beneficial.

Gnifrus Urquart has had significant success investing for many years. As such, he enjoys reviewing investment strategies and offering trading tips to anyone who enjoys investing

Like most individuals, I got stuck with what seemed like a huge deal on my auto loan. It was hard for me to even apply for a loan in the first place so when a bank proposed to let me take out everything I am required for my dream car I didn’t even think about the amount I was going to be settling for interest.

As it turns out the bank wasn’t exactly helping me because the interest rate was excessively high. From the time when I initially got my car; I’ve improved my credit rating and am prepared to refinance my auto loan.

I found out that the most excellent method to refinance my auto loan is to shop around. Armed with my improved credit score I asked the bank that provided me the original loan what additional options they could provide for me. At first they didn’t have a much better deal. That is when I began looking around with other banks.

The explanation why I looked around for additional choices to refinance my auto loan is because other banks are aggressive to get more business. If I discover a better offer from one place, another bank may go lower if I promise them my transaction.

What I was really looking for was cheaper monthly payments and a better interest rate. There was additionally the option to reset the amount of time I had to finish paying off my loan, but I refused since I am prepared to be done with making payments on my car and paying the bigger insurance fees.

One more option is to do an auto loan refinance. You will have to be able to show that you have paid on time on your auto for at least 6 months, but there are lenders that will get your auto loan and refinance it for you with a lower interest fee and better terms for you. They may oblige you to settle $500 to $1,000 up front, similar to a down payment to make the loan easier to get.

Jason Myers is a professional writer and he writes mostly about loan refinance news. He’s also interested in loan refinancing.

When it gets to selling mortgage leads, there are many good businesses available for you to learn, and many roads to travel down when considering which lead kind will work best for you. Investigating lead companies is an essential aspect when deciding to invest in one, but let’s be straightforward with one another; we really don’t know what kind of mortgage leads we are receiving until we begin to purchase them.

Starting as a loan executive I purchased my leads in bulk, new and with a live transfer. I would get $100 of my hard earned cash and buy approximately fifty leads at $2 each. I understand that you get what you pay for, and my mission was to close two at maximum, and at the very least one. Sometimes it worked and other times not. The problem was that I had the thought of working harder instead of smarter.

Next I Attempted to purchase real time leads, or fresh leads. I would get that same $100 and get approximately three to five fresh leads including purchase leads and refinance leads. I would create a filter before hand: particular to state, type of loan, credit, ltv, loan amount and so on.

Certainly when a lead came in, matching my filter, it would be stream lined directly to my email account, only approximately ten minutes old. I had victory with this method.

The other kind of lead I attempted to try out was the live transfer lead. I believed this to be a wonderful idea to enhance my methods. Mostly I just sat at my table, anticipating for the lead company to transfer customers to me through phone. The problem was that there was no assurance that I was there to pick up the phone.

If I stepped away from my desk the call would go to my voice mailbox, or the potential customer would put the phone down. And again I felt as though I was working harder in replacement of working smarter.

Jason Myers is a professional writer and he writes mostly about mortgage and refinance infos. He’s also interested in mortgage financing offers.

Refinancing of interest only loans just means swapping one loan for anew one. It is an efficient method to lower the debt on existing loans. This is especially beneficial if the present interest percentage are lesser than the interest rates you are presently paying on the loan. Refinancing would enable you to change your high interest debt into a low interest debt, as the amount of monthly due would become lower.

The additional cash saved can be used in something more lucrative such as real estate or stocks, or to pay off high-interest debts like credit cards. Refinancing is additionally done for switching an adjustable rate credit into a fixed rate mortgage.

Refinancing has turned out to be very ordinary in the past years that approximately 75% of new mortgages were refinanced loans in 2003.

Refinancing of interest only loans is very appealing, especially when the period comes for the loan to get paid back. That signifies the loan will need to be paid off at the current interest rate, together with the principle. Most individuals search to refinance their interest only loan for them to buy more time, i.e. to postpone the repayment of the principle further.

However, this may also increase the risk on the loan, since the interest rates may increase more, the cost of the house may go down or the economy may go down soon.

Refinancing of interest only loans is ideal for individuals who are expecting big capital gains in the next few years or are planning to market their house by the period the interest-only period has ended. This is an ideal choice given that the financial situation is good, the interest rates are balanced and the costs of homes are increasing. Interest only refinancing is suggested for individuals who have irregular earnings such as commissions or bonuses or people who are anticipating an increase in their wages in the coming years. The savings accrued from refinancing may also be utilized for home improvement, which will increase the value of the home in the future.

Jason Myers is a professional writer and he writes mostly about loan refinancing online. He’s also interested in lower mortgage offers.

Leverage is simply investment jargon for borrowing. Its called “leverage” because you use the value of an existing investment to underwrite, or as security for, the borrowing.

This article is all about the risks and rewards of borrowing to invest, or leveraging investment strategies. The information is general in nature and not intended as specific advice. As always, if you intend borrowing to invest, seek licensed financial advice before you do.

When I started investing, my borrowing habits where the same as most peoples. I had a floating credit card debt which varied to my whims. I had a small personal loan for some household items and a bigger one which enabled me to buy my car.

There are 2 problems with this type of borrowing. Firstly, all the assets I bought with the borrowed money were depreciating assets. This means that as I paid off the debt, the value of the things I bought decreased. Secondly, as I purchased “consumables”, the interest I paid on these loans was not tax deductible. This makes for a very expensive borrowing.

Things have changed over the years. I learned that debt is much more efficient when spent on investments. So now my credit card debt is negligible and paid off every month. My personal loans are completely paid off. Despite this, I have a lot more debt. I have a massive debt on an investment property. I have a margin loan for share trading. And I have a FOREX investment account which is leveraged at 400:1 (Which means I borrow $400 for every $1 I put in)

Why is it more efficient to use your borrowings for investing then?

Firstly, when you borrow to invest, you are “using other people’s money” to earn more money in the investment markets. A great example of this is in our FX Trading strategy. If I invest $10,000.00 and leverage it out at 400:1 that means I have $4,000,000 invested. This above example describes very well the first benefit of leverage. By accessing more money to invest, you can earn way higher returns on your investments than you otherwise would have been able to.

The second benefit you can get from borrowing to invest is a possible tax benefit. In my situation where I have borrowed to purchase an investment property in Victoria, as I rent out that property and earn an income from it, the interest payments on that mortgage become a cost associated with that income. As such, in my circumstance, I can claim those interest payments as a tax deduction. This means that while my asset is making me money, the tax office is actually giving me a discount on my borrowing by making it tax deductible

This works exactly the same in the margin loan I am using to help with my stock market investments. I have borrowed some money in a margin loan (I usuall try and keep the leverage here at about 1:1, so every dollar of my own I invest gives me another to invest) and pay interest every month on that loan. My stock market strategy pays me my consistent income every month, which is more than the interest on the margin loan. And then, at the end of the tax year, I deduct the interest payments from the money I earned, gaining a tax advantage.

Those are some of the benefits you can gain by borrowing to invest. There are risks too though, so it is very important to get independent financial advice if you are thinking about leverage.

So what are the risks associated with borrowing for investment purposes? One of the obvious risks relates to your financial capacity. There is the risk you over-extend yourself and cannot meet the repayment obligations on your loans. When taking out a loan, you need to be sure you can pay the loan repayments.

A margin loan is treated a little bit differently. If you borrow too much or the value of your investments drops suddenly, you will be at risk of paying margin calls. This means your lender will ask you to pay off a portion of the loan, so that the outstanding loan is in a reasonable level when compared to the reduced level of collateral. This can be quite a large issue if your investments drop by a long way. If you cannot meet the margin call obligations, your lender has the right to sell your investments.

Finally there is the investment risk. When you borrow to invest, you do so with the intention that the income earned from the money you invest, exceeds the interest the borrowing accrues. If the interest is higher than the investment earnings, you are losing money.

All risks with investing can be mitigated with strategy. That is why it is so important to speak to a licensed financial adviser before you invest and especially before you borrow to invest. So if you are considering leverage, speak to an adviser about risk mitigation. Leveraging your investments can definitely be financially rewarding, but only when you properly understand and manage your risk and when it is backed up by a consistently high performing investment strategy.