Debt recycling is a financial strategy that can help you transform your non-deductible home loan debt into tax-deductible investment debt. This approach is gaining popularity in Australia among homeowners looking to pay off their home loan faster while simultaneously building an investment portfolio. Let’s dive into what debt recycling is, how it works, and the potential benefits and risks associated with it.

What is Debt Recycling?

Debt recycling involves using the equity in your home to invest in income-producing assets. The strategy typically works as follows:

  1. Set Up an Investment Loan: You take out a new loan or use an existing line of credit to invest in income-producing assets such as shares or investment properties.
  2. Repay Non-Deductible Debt: You use the income (such as dividends or rental income) generated from your investments to pay down your non-deductible debt, typically your home mortgage.
  3. Reborrow for Investment: As you pay down your home loan, you reborrow the same amount against your home equity to invest again. This process continues, effectively “recycling” the non-deductible home loan debt into tax-deductible investment debt.
  4. Tax Benefits: The interest on the investment loan is tax-deductible because it is used for income-producing purposes, potentially reducing your taxable income.

How Does Debt Recycling Work?

Here’s a simplified example to illustrate the process:

  • You have a $420,000 home loan.
  • You have $120,000 sitting in your offset
  • We create a second split and while moving the funds from the offset account into the loan account.
  • We use the funds to purchase a new investment property or invest in shares.
  • Over time, as your home loan decreases, you can borrow more against your home’s increasing equity to invest further.

Click here for a visual representation of this process.

What Are the Benefits of Debt Recycling?

  • Tax Deductibility: By converting non-deductible home loan interest into tax-deductible investment loan interest, you can reduce your taxable income. This can lead to significant tax savings, especially for higher-income earners.
  • Accelerated Mortgage Repayment: Using the income generated from investments to pay down your home loan can help you pay off your mortgage faster, reducing your overall interest costs.
  • Increased Investment Portfolio: Over time, debt recycling can help you build a substantial investment portfolio, as you continuously reborrow and invest.
  • Leverage: By borrowing to invest, you can potentially amplify your returns. This leverage can work to your advantage if the investments perform well.

Risks and Considerations

  • Financial Discipline: Debt recycling requires a disciplined approach to ensure that investment income is consistently used to pay down non-deductible debt and that reborrowed funds are properly invested.
  • Professional Advice: Consulting with financial advisors and tax professionals is crucial. They can help tailor the strategy to your specific financial situation and ensure compliance with relevant laws.
  • Review and Adjust: Regularly review your debt recycling strategy to ensure it remains aligned with your financial goals and market conditions. Be prepared to make adjustments as needed.
  • Emergency Fund: Maintain an emergency fund to cover unexpected expenses or financial setbacks. This can provide a buffer if your investments don’t perform as expected.

Is Debt Recycling Right for You?

Debt recycling can be an effective strategy for disciplined investors with a good understanding of financial markets and a willingness to take on some risk. It’s particularly beneficial for those with significant home equity and a high marginal tax rate. However, it’s not suitable for everyone. It’s crucial to seek advice from a qualified financial advisor or mortgage broker to ensure this strategy aligns with your financial goals and risk tolerance.


Debt recycling offers a unique opportunity to convert non-deductible home loan debt into tax-deductible investment debt, accelerating your journey to financial independence. By carefully planning and managing this strategy, you can potentially reduce your home loan faster while building a robust investment portfolio. As with any financial strategy, understanding the risks and seeking professional advice is key to success.

At Simplify Finance, we specialize in helping clients navigate complex financial strategies like debt recycling. If you’re considering this approach, contact us today to discuss how we can tailor a plan to suit your individual needs and help you achieve your financial goals.