Debt recycling turns the least useful debt you have - your home loan - into the most useful kind: tax-deductible investment debt. This calculator shows exactly what that's worth in your situation, the real cost of running it, and how many years sooner your home loan is gone if you commit the savings to it.
How debt recycling works
1. Split Redraw or split off a fixed amount of home equity into a
separate, interest-only investment loan.
2. Invest Use that money only to buy income-producing assets - shares,
ETFs, managed funds. Never mix it with personal spending.
3. Deduct The investment loan's interest is now tax-deductible, because
the money was used to produce assessable income.
4. Redirect Send the tax refund and the investment's own income onto the
remaining (non-deductible) home loan as extra repayments.
5. Repeat As the home loan shrinks and the property grows, more usable
equity becomes available to split off into a new tranche.
Step 5 is what makes it "recycling" rather than a one-off. This calculator models steps 1–4 precisely, for a single tranche - see the FAQ on repeating the cycle for why step 5 needs a broker or adviser rather than a fixed set of assumptions.
Worked example: $200,000 recycled from a $1,000,000 home
| Item | Figure |
|---|---|
| Home value | $1,000,000 |
| Home loan balance (non-deductible) | $400,000 |
| Home loan rate | 6.00% p.a. |
| Usable equity at 80% LVR | $400,000 |
| Amount recycled into a new investment loan | $200,000 |
| Investment loan rate (interest-only) | 6.00% p.a. |
| Expected distribution yield | 4.00% p.a. |
| Taxable income | $120,000 |
This year's numbers:
| Investment loan interest (deductible) | $12,000 |
| Investment income (assessable) | $8,000 |
| Net deduction | $4,000 |
| Marginal tax rate (30% bracket + 2% Medicare) | 32% |
| Tax saved | $1,280 |
| Redirected to extra home loan repayments | $9,280/year (~$773/month) |
| Net annual cost of the strategy | $2,720 |
Home loan payoff, 25-year term, $400,000 at 6%:
| Without recycling | With recycling | |
|---|---|---|
| Monthly repayment | $2,577 | $2,577 + $773 extra |
| Years to repay | 25.0 | 15.3 |
| Total interest paid | $373,162 | $210,394 |
Redirecting $9,280 a year cuts 9.8 years and $162,768 of interest off the home loan - funded by $2,720/year of real out-of-pocket cost plus the investment's own growth, which this calculator deliberately doesn't project (see below).
When the numbers flip to cash-flow positive
The example above costs money because the 6% investment loan rate exceeds the 4% distribution yield - a $4,000 net deduction. Run the same $200,000 tranche at an 8% yield instead: investment income becomes $16,000, which exceeds the $12,000 interest by $4,000. That $4,000 is now extra assessable income rather than a deduction - $1,280 more tax at the same 32% marginal rate - but the household is still $2,720/year ahead in cash terms, before any capital growth at all. High, dependable yields above the loan rate are unusual for a diversified portfolio, so most debt recycling plans run at a net cost like the first example and rely on capital growth over years to be worth it.
The part this calculator doesn't model, on purpose
- Capital growth on the invested assets. The distribution yield is assessable income only - dividends or fund distributions. Projecting an expected total return would mean assuming a market outcome, which this calculator won't do.
- CGT on eventually selling the investment. See the CGT Projection Calculator for that half of the picture.
- Repeated tranches. Real debt recycling plans often redraw further equity every year or two as the home loan shrinks. This models one fixed tranche held for the life of the projection.
- Loan structuring. Whether your specific split-loan setup will actually hold up to an ATO review of deductibility. That's a conversation with your accountant and lender, not a calculator input.
Is this the right strategy?
Debt recycling suits people with secure income, a long investment horizon, and genuine spare serviceability to absorb a net annual cost if the yield doesn't cover the loan interest. It increases your total debt and puts investment risk against your home - the Negative Gearing Calculator is the equivalent strategy through a rental property instead of a share portfolio, and the Offset Account Calculator shows the simpler, lower-risk alternative of just paying down the home loan directly. None of these are advice - talk to a financial adviser before restructuring a home loan.
Frequently asked questions
What is debt recycling?
Debt recycling replaces non-deductible home loan debt with tax-deductible investment debt, without increasing your total borrowing. You split off a chunk of home equity into a separate loan, invest it in income-producing assets (typically shares or ETFs), and because that new loan was used to produce assessable income, its interest becomes tax-deductible. The tax refund and the investment's own income are then redirected as extra repayments onto what's left of the home loan, paying it off faster.
How much does debt recycling actually save in tax?
Tax saved = the net deductible amount × your marginal tax rate. If you recycle $200,000 at a 6% investment loan rate, the deductible interest is $12,000/year. If the portfolio pays a 4% distribution yield, that adds $8,000/year of assessable income. The net deduction is $12,000 − $8,000 = $4,000, worth $1,280/year at a 32% marginal rate (30% bracket + 2% Medicare levy). That $1,280 refund plus the $8,000 of investment income - $9,280 in total - is what gets redirected onto the home loan.
Is debt recycling actually worth it, or does it cost money?
It usually costs money in the short term, and that's normal - the same trade-off as negative gearing. In the example above, the $12,000 investment loan interest is only partly offset by the $8,000 of investment income and the $1,280 tax refund, leaving a net annual cost of about $2,720. The strategy is a bet that the invested capital's growth, over years, is worth more than that ongoing cost - plus you get a home loan paid off years sooner along the way. If your distribution yield is higher than your investment loan rate, the position flips to cash-flow positive before any capital growth at all.
Does debt recycling ever make money before any capital growth?
Yes, whenever the distribution yield exceeds the investment loan rate. Recycle $200,000 at a 6% loan rate into an 8% yield and the investment income ($16,000) exceeds the deductible interest ($12,000) - that net $4,000 is now extra assessable income, so you pay $1,280 more tax at a 32% marginal rate, but you're still $2,720/year ahead in cash terms. High, reliable yields at 8%+ are unusual for a diversified portfolio, though - most debt recycling relies on capital growth to make the numbers work, not yield alone.
Why does the investment loan have to be separate from the home loan?
The ATO's deductibility test looks at what the borrowed money was actually used for, not what the loan is called. A genuine debt-recycling loan is split cleanly at the point the money is drawn and used only to buy income-producing assets - never mixed with owner-occupier spending. If a split loan or redraw facility isn't tracked properly, or investment funds are ever mixed with personal spending through the same account, the ATO can treat part or all of the interest as non-deductible. Get the loan structured correctly with your lender and accountant before recycling any equity - this calculator doesn't check loan structure, it only models the numbers once it's clean.
What happens to the tax refund if I don't redirect it to the home loan?
Nothing changes about whether you receive it - the tax saving exists regardless. But the accelerated home loan payoff this calculator shows only happens if the refund and investment income are actually redirected as extra repayments. Turn off 'Redirect investment income and the tax refund' in the calculator to see the tax and cash-flow numbers on their own, with the home loan repaid on its original schedule.
Can I keep recycling equity as the home loan shrinks?
In principle yes - as the non-deductible loan balance falls (and if the property grows in value), more usable equity becomes available to split off into a further tranche, repeating the cycle until the home loan is fully converted to deductible debt. This calculator deliberately doesn't model that: it shows a single fixed tranche, because projecting repeated tranches means assuming a property growth rate and a repeat decision every year, both of which are genuinely uncertain. A mortgage broker or financial adviser can model a full multi-tranche plan against your actual numbers.
What are the risks of debt recycling?
You're borrowing more against your home to invest, which means investment risk and interest-rate risk are now both secured against the roof over your head. If the investments fall in value, you still owe the full investment loan and still pay interest on it - the debt doesn't recycle itself back down. If rates rise, the net annual cost calculated here gets worse on both loans at once. And if the loan isn't structured correctly, you can lose the tax deduction while keeping all of the debt. This is a leveraged, long-horizon strategy - get financial advice before starting, not after.
How is this different from negative gearing an investment property?
Same tax mechanism - deductible interest offsetting other income - applied to a different asset. Negative gearing borrows against (or for) a rental property; debt recycling borrows against home equity to buy shares or funds. Debt recycling is usually more liquid (shares can be sold in days, not months) and avoids stamp duty and land tax, but a share portfolio doesn't have a roof over anyone's head and is more exposed to market volatility day to day. Property investors sometimes use both - see the [Negative Gearing Calculator](/calculators/negative-gearing/) if that's the strategy you're comparing.
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Last updated: 20 September 2026