A single, fully illustrative model on a $600,000 home loan, recycled in tranches into a share portfolio, including one honest bad year. Every figure here is hypothetical and based on the assumptions we spell out below.
This page walks one hypothetical homeowner through debt recycling on a $600,000 mortgage, converting the loan into deductible investment debt about $50,000 at a time and redirecting the dividends and tax refunds back onto the home loan. On the illustrative assumptions we state, the non-deductible home loan clears many years ahead of schedule while a share portfolio builds alongside it. We deliberately include a year where the market falls, because real markets do not move in a straight line. None of these numbers is a forecast, a quote or a promise. They are a teaching example only, and your own result would depend on your circumstances, the assets your adviser recommends and the returns the market actually delivers.
Home › Guides › A worked example: $600k mortgage
To make debt recycling concrete, it helps to follow one example all the way through. The homeowner below is entirely hypothetical, invented to illustrate the mechanics. Please read the assumptions carefully, because the whole model rests on them, and change any one of them and the outcome changes too.
Here is the starting position and every assumption we have used:
| Assumption | Illustrative figure used |
|---|---|
| Home value (illustrative) | $850,000 |
| Home loan at the start, all non-deductible | $600,000, 30-year term |
| Amount recycled per year, in tranches | Around $50,000 |
| Marginal tax rate assumed | 47% (45% top bracket plus 2% Medicare levy) |
| Investment loan interest rate assumed | 6.5% per year |
| Assumed long-run distribution (income) yield | 4.0% per year |
| Assumed long-run capital growth | 3.0% per year, except one bad year |
| Where dividends and refunds go | Redirected onto the non-deductible home loan |
A few notes on those choices. We have used a high marginal rate because the tax benefit of debt recycling scales with the rate you pay, so this shows the strategy working in reasonably favourable conditions. We have kept the assumed capital growth deliberately modest, and the income yield separate from it, because we would rather under-promise than paint a rosy picture. The total debt does not rise over the exercise: recycling shifts the composition of the same borrowing from non-deductible to deductible, it does not add a new loan on top.
Read this before the numbers. These figures are illustrative and simplified. They are not a projection of your result, not a quote, and not a promise. Real returns are uneven and can be negative for years at a time. This is general information, not personal financial, tax or legal advice.
Debt recycling is a repeating loop. In this model, the homeowner runs the same four moves each year, with a broker structuring the lending and their financial adviser choosing the investments.
Around $50,000 of the home loan is set up as a separate, clean investment split and drawn to invest. The total debt stays near $600,000; what changes is that this slice is now borrowed to produce income.
The adviser recommends a diversified, income-producing share and ETF portfolio. We only structure the loan. The interest on the investment split is generally deductible because the borrowed money is used to earn assessable income.
The portfolio distributions, roughly 4% a year in this model, are paid onto the non-deductible home loan rather than spent, so the home loan falls faster than the scheduled repayments alone would achieve.
The deduction produces a tax refund, which also goes onto the home loan. As the home loan drops, more usable room opens up to recycle the next tranche, and the loop begins again.
The engine of the whole thing is that non-deductible debt is steadily replaced by deductible debt while the total stays roughly constant, and the freed-up cashflow keeps attacking the home loan. For a plain-English walk-through of the mechanics, see our guide on how to set up debt recycling.
The table below tracks the same hypothetical borrower across the opening five years. Figures are rounded and simplified for clarity, and Year 3 is a deliberately poor market year, covered in detail in the next section.
| End of year | Deductible investment split | Non-deductible home loan | Portfolio value (illustrative) | Interest deduction that year | Tax refund redirected |
|---|---|---|---|---|---|
| Year 1 | $50,000 | $545,000 | $51,500 | $3,250 | around $1,500 |
| Year 2 | $100,000 | $488,000 | $105,000 | $6,500 | around $3,100 |
| Year 3 (market falls) | $150,000 | $430,000 | $132,000 | $9,750 | around $4,600 |
| Year 4 | $200,000 | $370,000 | $200,000 | $13,000 | around $6,100 |
| Year 5 | $250,000 | $308,000 | $270,000 | $16,250 | around $7,600 |
Two things are worth noticing. First, the non-deductible home loan is falling much faster than a standard 30-year schedule would manage, because it is being hit from three directions at once: normal repayments, redirected dividends, and redirected tax refunds. Second, the yearly interest deduction grows as each new tranche is recycled, which lifts the refund that goes back onto the home loan the following year. That compounding of small redirected amounts is the quiet part that does much of the work over time.
The tax refund figures assume the deduction reduces income taxed at the 47% rate. In reality the benefit depends on your actual income, your other deductions and the tax law at the time, which is exactly why a registered tax agent, not a website, should confirm your position.
Any honest example has to include a poor year, because leveraged strategies feel very different when markets are down. In Year 3 of this model, we assume the portfolio falls by about 15% before the new tranche is added. That is why the Year 3 portfolio value, at roughly $132,000, is lower than the amount recycled into it.
This is the risk that matters most: because you have borrowed to invest, a market fall lands on a larger balance, and the loan does not shrink just because the portfolio did. If the homeowner were forced to sell during that dip, perhaps because of job loss or a cashflow shock, the loss would be crystallised and the strategy could end up behind where it started. That is the sequencing risk that makes buffers and a long time horizon so important.
Notice what does not change in the bad year, though. The interest is still generally deductible, the distributions are still being paid and redirected, and the home loan still falls. The homeowner who can hold through the dip without selling keeps the strategy intact and lets the later years do the recovering. We cover this in full in our guide to debt recycling risks and, from the returns angle, in realistic returns from debt recycling.
Debt recycling is a long game, not a five-year sprint. Carrying the same illustrative assumptions forward, and assuming the homeowner keeps recycling until the non-deductible loan is gone and then simply holds the portfolio, the model points to something like the following. These are stylised, rounded, illustrative figures only.
An illustrative long-run picture on the assumptions above. The non-deductible home loan is cleared well ahead of the original 30-year term, and by then the borrower holds a portfolio that was funded by equity which would otherwise have sat idle in the home.
Read these as a shape, not a target. They assume steady long-run growth of 3% and a 4% income yield with one bad year, no change in tax law, no missed repayments and no early sales. Real markets are lumpier than that, which is precisely why the risk section above carries as much weight as these headline numbers. Your own figures would be different.
How long the loop actually takes depends on your spare cashflow, your marginal rate and the returns you get, all of which we unpack in how long debt recycling takes. Whether the whole thing clears the hurdle in the first place is a separate question, worked through in is debt recycling worth it.
Get a free, no-obligation estimate, or talk it through with a licensed broker who structures debt recycling loans every week.
Book a free call →It is worth being blunt about the limits of an example like this. A worked model is a teaching tool, not a prediction of your future. We have used smooth, round assumptions so the mechanics are easy to follow, but real life supplies uneven returns, changing interest rates, shifting tax rules and the occasional expensive surprise.
What the model does show reliably is the machinery: how a non-deductible home loan can be converted, tranche by tranche, into deductible investment debt without adding to the total borrowing, and how redirecting income and refunds accelerates the home loan. What it cannot tell you is the number you personally will end up with, because that depends on returns nobody can promise and on your own income, buffers and discipline.
There is also a clear division of roles. We are mortgage brokers: we arrange and structure the lending so the strategy has a clean foundation. Your financial adviser recommends the actual investments, and your registered tax agent confirms and claims the deductions. When those three pieces line up, the strategy tends to hold up. Before acting on anything here, get advice from each of them about your own circumstances.
A note on these figures. Everything on this page is a hypothetical illustration built on the stated assumptions. It is not a forecast, a quote, or a promise of any result, and past performance is not a reliable guide to future returns. Debt recycling is leveraged and uses your home as security, so it can amplify losses as well as gains. Seek advice from a licensed broker, financial adviser and registered tax agent before you act.
No. The homeowner, the figures and the timeline are all hypothetical, created to illustrate how debt recycling works on a $600,000 mortgage. They are not based on any real client and are not a promise of what you would achieve.
Because leaving it out would be misleading. Debt recycling is a leveraged strategy, so a market fall lands on borrowed money and can put you behind for a time. Showing a bad year makes the sequencing risk visible, which matters as much as the upside.
No. In this model the total borrowing stays near $600,000. Recycling shifts the composition of that same debt from non-deductible to deductible over time, rather than piling a new loan on top of your mortgage.
Almost certainly not exactly. The outcome depends on your marginal tax rate, spare cashflow, the assets your adviser recommends and the returns markets actually deliver. This example is a shape to understand, not a target to expect. A tailored estimate is a better starting point.
Your financial adviser does. We structure the lending so the interest can stay deductible and the strategy has a clean foundation. We do not recommend specific investments, and your registered tax agent confirms the deductions.
The hurdle rate that decides whether the maths stacks up.
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Read more → GUIDEThe honest list, and how each risk is managed.
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