What is debt recycling?

Debt recycling is a strategy where you make extra repayments on your home loan, then reborrow that amount as a separate investment loan to buy income-producing assets like shares. The key benefit is that interest on the investment loan is tax-deductible (unlike your home loan interest), effectively converting 'bad debt' into 'good debt'. Over time this can significantly accelerate wealth building through tax savings and investment growth.

Is debt recycling legal in Australia?

Yes, debt recycling is completely legal in Australia. The ATO allows you to claim a tax deduction on interest for loans used to produce assessable income, such as dividends from shares. The key requirement is that you must keep the home loan and investment loan in separate accounts so the purpose of each loan is clear. This is a well-established strategy used by many Australians and endorsed by financial planners.

What are the risks of debt recycling?

The main risks of debt recycling include: investment markets may fall, meaning your portfolio could be worth less than the investment loan (negative equity); interest rates may rise, increasing your total repayments; you are leveraging into investments which amplifies both gains and losses; and if you lose your income, you have both a mortgage and investment loan to service. Debt recycling is not suitable for everyone — it works best for people with stable income, a long time horizon, and comfort with investment risk.

Who should consider debt recycling?

Debt recycling is generally suited to homeowners who have a stable income, are on a higher marginal tax rate (30% or above), can afford extra mortgage repayments, have a long investment time horizon (10+ years), and are comfortable with share market volatility. It is less suitable for people close to retirement, those with irregular income, or anyone who cannot comfortably afford the extra repayments. Always seek advice from a qualified financial adviser before starting.

How much can I save with debt recycling?

The wealth benefit from debt recycling depends on your mortgage size, extra repayment amount, marginal tax rate, and investment returns. As a rough guide, someone recycling $1,000 per month on a $500,000 mortgage at the 37% tax rate with 8% investment returns could build over $100,000 in additional wealth over a 25-year mortgage term compared to just making extra mortgage repayments. The tax deductions alone can save tens of thousands of dollars. Use the calculator above to model your specific situation.

Debt Recycling Calculator

Calculate your wealth gain from debt recycling. See tax deductions, portfolio growth, and the wealth gap vs standard mortgage repayments.

Last verified: 5 May 2026

Does debt recycling actually build wealth?

Debt recycling replaces paid-down non-deductible home loan debt with tax-deductible investment loan debt, so the same dollars do two jobs: pay off the mortgage faster and buy income-producing shares. Interest on the investment portion is tax-deductible (ATO: interest is deductible when the borrowed money produces assessable income such as dividends); interest on the home loan is not. The split-loan structure is legal provided the two loan accounts stay separate. Source: ATO; Australian Securities & Investments Commission.

Worked example. $500,000 mortgage at 6%, 25 years. Extra $1,000/month debt-recycled (paid to home loan, redrawn into an investment split and put into shares at 8% total return, 4% franked yield, 37% marginal tax). Year-1 interest on the investment split ≈ $720 → $266 tax deduction. Over 25 years the portfolio builds an extra $100,000+ vs just paying down the mortgage with the same $1,000/month. Works best at 30%+ marginal tax, stable income, 10+ year horizon. Key risks: share market drawdowns, rate rises, job loss — you're servicing two loans.

General information and estimates only — not financial, tax, or legal advice. Always verify with a licensed adviser or the ATO.

Debt Recycling Calculator

Does debt recycling actually build wealth?

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