You invest €50,000 of your own money + borrow €50,000 at 3% interest. If the investment returns 8%:
Without leverage you'd earn €4,000 (8%). With leverage you earn €6,500 (13%) on YOUR money!
Same setup, but the investment loses 10%:
Without leverage you'd lose €5,000 (10%). With leverage you lose €11,500 (23%) — more than double!
When you take a mortgage or loan, the total interest paid over the life of the loan is staggering. Most people don't realise they end up paying almost double.
A 25-year mortgage at 3.5% means you pay 1.5× what you borrowed. At 5%, it's almost 1.75×. The bank earns more from interest than YOUR house cost!
A €30,000 car loan at 7% over 5 years costs you €5,618 in interest. The car loses 50% of its value while you're paying it off – double whammy!
€5,000 on a credit card at 18% interest, paying minimums: it takes 30+ years to repay and costs €12,000+ in interest — 3.4× the original amount!
Only borrow when: the asset APPRECIATES (real estate), the rate is LOW, and the expected return EXCEEDS the interest cost. Never leverage for depreciating assets.