negative or positive leverage

leverage, negative or positive

Negative leverage occurs when the cost of borrowing money is greater than the return a party makes on an equity investment.This could occur with an adjustablerate mortgage on a commercial investment during a time of rapidly rising interest rates. Construction loans, and development loans, are usually at adjustable rates of interest and do not have any ceilings or limits on the interest rate. Positive leverage occurs when the cost of money is less than the return on an investment.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.