Debt recycling is a financial planning strategy, that gets the approval of your accountant needs your mortgage broker to facilitate

Rebecca Jarrett-Dalton
14 minutes ago
2 min read

Debt Recycling Explained

Debt recycling is a strategy some Australians use to turn their home loan into a tool for building wealth.

The idea is simple: over time, you replace your non-deductible home loan debt (which gives you no tax benefit) with investment debt (which may be tax-deductible).

Now lets stop here and insert the standard disclosures – we are not giving you tax advice and we recommend you bring in your trusted professionals.

Here’s how it works:

· You start with your standard home loan and commit to paying it down as quickly as you can – or you might build your savings in your offset but ultimately we want to get the spare money into your home loan.

· Over time you build up cash savings or redraw in your loan and you think you’d like to invest with them - great!

· We can help you split your existing loan so the redraw can be moved to a new investment split, and, you can redraw from this to start investing.

· The limit of the existing loan is reduced and a new split made with the difference – total loan limits remain the same (unless you want to increase them), its just recycling the loan you’ve already repaid

· Effectively;

You’ve take a chunk off your own home loan – and the repayments can reduce to go along with this
You’ve recycled the extra money you had
And you have a new loan with a new account number to track your interest expenses

· Your home loan continues to shrink, while your investment loan grows. Over time, more of your debt becomes “good debt” (potentially tax-deductible) rather than “bad debt” (your home loan).

The goal is twofold: pay off your mortgage faster while also building an income - producing investment portfolio - with no finger wagging from your accountant.

Of course, this strategy isn’t for everyone. It involves discipline, the right loan setup, and a long-term view, as well as comfort with investment risk. Getting advice from a financial adviser, tax professional, and mortgage broker is strongly recommended before you start.

Check out our explainer video below