Aussie Debt Recycling
As you recycle, the orange (non-deductible home loan) shrinks and blue (tax-deductible investment loan) grows. Total debt stays the same—you're restructuring, not increasing borrowing.
Both strategies invest the same surplus cash. Debt recycling adds tax deductions, which are reinvested and compound over time.
Starting from the same surplus cash, debt recycling adds three layers of advantage: tax deductions, reinvested savings, and compounding growth.
Can't recycle more than the original mortgage cap ($600,000). Tax savings reinvested each year compounds the advantage.
| Year | Home Loan | Deductible Debt | Annual Tax | Cumulative Tax | Tax Savings FV | DR Net Wealth | Regular Net Wealth | Additional Wealth |
|---|---|---|---|---|---|---|---|---|
| 0 | $600,000 | $0 | $0 | $0 | $0 | $550,000 | $550,000 | $0 |
| 1 | $576,000 | $24,000 | $577 | $577 | $1,695 | $519,457 | $520,080 | +$623 |
| 2 | $552,000 | $48,000 | $1,154 | $1,732 | $4,835 | $485,846 | $487,766 | +$1,920 |
| 3 | $528,000 | $72,000 | $1,732 | $3,463 | $9,195 | $448,924 | $452,868 | +$3,944 |
| 4 | $504,000 | $96,000 | $2,309 | $5,772 | $14,579 | $408,424 | $415,177 | +$6,753 |
| 5 | $480,000 | $120,000 | $2,886 | $8,658 | $20,809 | $364,061 | $374,471 | +$10,410 |
| 6 | $456,000 | $144,000 | $3,463 | $12,121 | $27,732 | $315,526 | $330,509 | +$14,983 |
| 7 | $432,000 | $168,000 | $4,040 | $16,162 | $35,211 | $262,485 | $283,030 | +$20,545 |
| 8 | $408,000 | $192,000 | $4,618 | $20,779 | $43,124 | $204,576 | $231,752 | +$27,176 |
| 9 | $384,000 | $216,000 | $5,195 | $25,974 | $51,368 | $141,412 | $176,372 | +$34,960 |
| 10 | $360,000 | $240,000 | $5,772 | $31,746 | $59,849 | $72,571 | $116,562 | +$43,991 |
| 11 | $336,000 | $264,000 | $6,349 | $38,095 | $68,487 | $2,400 | $51,967 | +$54,367 |
| 12 | $312,000 | $288,000 | $6,926 | $45,022 | $77,212 | $83,993 | $17,796 | +$66,197 |
| 13 | $288,000 | $312,000 | $7,504 | $52,525 | $85,964 | $172,736 | $93,139 | +$79,597 |
| 14 | $264,000 | $336,000 | $8,081 | $60,606 | $94,692 | $269,202 | $174,510 | +$94,692 |
| 15 | $240,000 | $360,000 | $8,658 | $69,264 | $103,350 | $374,009 | $262,391 | +$111,618 |
Step 1: Enter your current home loan balance, interest rate, and how many years you want to project.
Step 2: Decide your strategy. "Extra monthly" is the amount you'll pay above minimum repayments each month — this is the cash flow you're redirecting. In practice, you might batch this (pay off $50k/year, then redraw it once yearly).
Step 3: Set your expected investment return (ASX 200 historically ~9–10% p.a.) and tax bracket. Your tax savings are calculated as: investment loan × interest rate × tax rate.
Key insight: You're not creating new leverage—you're recycling existing cash flow. Your total debt stays the same, but you shift it from non-deductible (home loan) to tax-deductible (investment loan). The tax refunds you receive annually are then reinvested, which compounds the advantage over 10–15 years.
The comparison table shows the wealth gap between DR (with tax refunds reinvested) and regular investing (no tax deductions). This gap is why FIRE timelines shift.
This calculator models the tax advantage of debt recycling, but there's an additional strategy: use your investment returns to pay down your mortgage, then redraw after 12 months.
How it works: Every 12 months, if your investment account has grown (say from 8% returns), withdraw that growth and pay it toward your home loan. You've now reduced your non-deductible debt. After 12 months, redraw the same amount as an investment loan. Even though you owe the same total, you've shifted another portion of your debt to become tax-deductible.
The interest saving: During that 12-month period, you paid down your home loan, which saves you interest immediately. At 6% on $50k, that's $3,000 in interest saved. Then you redraw and invest again—staying invested for the long term.
To see how extra repayments, offset accounts, and rate changes impact your mortgage timeline, use the Loan Ledger Mortgage Calculator. There you can:
The Loan Ledger shows you the payoff dates and equity snapshots. Cross-reference those with your debt recycling strategy here to optimize your redraw timing.
Open Loan Ledger →No. Your total debt stays the same—you're just changing its composition. Instead of owing $600k on a non-deductible home loan, you owe $X on the home loan and $(600k−X) on a tax-deductible investment loan. The advantage comes from the tax deduction, not from borrowing extra.
When: (1) your investment return exceeds your after-tax borrowing cost, (2) you have a long horizon (10+ years), (3) you can handle the investment volatility without selling, and (4) you're disciplined about keeping the investment account separate. At 6.5% loan rate, 37% tax, your after-tax cost is ~4.1%. If ETFs return 8%, you have a 3.9% spread in your favour.
Real cash. You claim the interest on your investment loan as a deduction. This reduces your taxable income and generates a refund. This calculator assumes you reinvest that refund immediately—which is what makes the long-term advantage so significant. If you spend it instead, the advantage shrinks.
Yes. Instead of redrawing $2k monthly, you might pay $24k/year toward the home loan, then redraw $24k once yearly to invest. The calculator models monthly redraws for simplicity, but the long-term outcomes are similar. Batching might reduce redraw fees and makes recordkeeping easier.
You still owe the full investment loan amount. Debt recycling adds market risk to leverage—you're borrowing for equity exposure. If you can't tolerate your investments falling 30–40% without panic selling, DR might not suit you. This is why it's a long-term strategy.
Pay down your home loan with surplus cash (or reinvested investment gains), then redraw the same amount as an investment loan after 12 months. You save interest during that 12-month period while maintaining the total debt. This is especially powerful when your investment portfolio grows—you effectively convert portfolio growth into a tax-deductible loan.
Yes. The ATO requires that home loan (non-deductible) and investment loan (deductible) be completely separate. If you mix funds between them, the deduction can be contaminated and lost. This is non-negotiable—get proper tax and legal advice before starting.
Enter your home-loan balance and rate and the surplus you can recycle each month. The calculator repays that amount off your home loan, immediately redraws it as a separate investment loan, and invests it — repeating monthly. It projects your growing tax-deductible investment split, the annual tax saving, your ETF portfolio, and the net advantage versus a plain offset strategy over 15 years.
I'm a geologist-turned-builder who got frustrated with financial calculators that hand-wave how Australian tax actually works.
Every projection on MyNextDollar runs on current ATO mechanics for FY2026-27 — Stage-3 brackets, super contribution caps and HELP thresholds.
The calculation engine is covered by 88 unit tests and 10,000 fuzz scenarios, so what you see is exactly what the rules produce — not a rough estimate.