What recycling your debt actually does.
Debt recycling converts your home loan into tax-deductible investment debt, one repayment at a time. This models the strategy honestly against simply paying the loan down or investing alongside it, including the fact it won't pay your mortgage off faster.
Estimate only. Assumes constant rates and returns, and enough taxable income to use every deduction. This strategy involves borrowing to invest. Speak with your financial adviser before acting.
Savings or offset money beyond your buffer.
What you can consistently commit beyond minimum repayments.
Interest-only investment splits usually price slightly above owner-occupied.
Better off after 15 years than the next-best strategy, on these assumptions. Same household cashflow, restructured.
Non-deductible home loan shrinks. Deductible investment debt grows in its place. Total borrowings roughly hold, but their tax character changes.
This cuts both ways.
- Borrowing to invest magnifies losses as well as gains. If returns fall short of your investment loan rate, recycling leaves you behind.
- The loan structure has to be right. Clean splits, never mixed purpose, or the deductibility fails.
- It requires surplus cashflow and the discipline to hold through downturns.
- Tax outcomes depend on your circumstances. This is exactly the strategy to run past your financial adviser and accountant first.
Assumptions behind the numbers▾
- Rates, income yield and growth are held constant across the whole horizon. Real life doesn't work that way, but it makes the strategies comparable.
- The three strategies use the same household cashflow — the fixed home loan repayment, your monthly surplus, and the same lump sum on day one.
- Investment interest is deductible against the current-year tax refund (same-month simplification). In practice you claim it at tax time and reinvest the refund.
- Franking credits use the 30% company tax gross-up. Refunds of excess credits are assumed available (i.e. resident individual).
- Capital gains tax is excluded on the buy-and-hold assumption. Selling would reduce the recycling advantage; a longer horizon expands it.
Rather see it built around your numbers?
Debt recycling lives or dies on loan structure. If you have a financial adviser, take this to them first. It's their strategy to own. If you'd like the lending side mapped properly, we're here.