What is the term for the practice of using borrowed money to increase the potential return on investment?

The term that describes the practice of using borrowed money to increase the potential return on investment is leverage. When investors use leverage, they are essentially borrowing funds to amplify their investment capacity. This can enhance the overall return on investment when the asset appreciates in value. For example, if an investor purchases a property using a mortgage, any increase in the property value enhances their equity relative to the amount borrowed, leading to a greater return on the initial cash investment.

Equity refers to the ownership value in an asset after debts, such as a mortgage, have been subtracted. Yield represents the earnings generated and expressed as a percentage of the investment, often relating to income generated by an asset or investment over time. Collateral is an asset that a borrower offers to a lender to secure a loan, which is unrelated to the concept of using borrowed funds to enhance investment returns.