Both can hold the borrowing you use to invest. They differ in how they repay, how easily they get misused, and how many lenders still offer them.
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For most debt recycling setups, a standard loan split with redraw does the job, often at lower cost and with less room for error. A line of credit gives revolving access and interest-only repayments, but it is easy to dip into for private spending, often priced higher, and offered by fewer lenders than it once was. Master limit facilities sit between the two, letting you resize splits without a new application. Using any of them to capitalise investment interest draws ATO scrutiny.
Home › Guides › Alternatives › Line of Credit vs Split Loan
Debt recycling needs one account that only ever holds investment borrowing. Two kinds of facility can do that job.
A split is a sub-account of your home loan with its own account number, balance, rate type and repayment setting. You draw it to invest, usually through redraw, and it runs on a set term as interest-only or principal and interest.
A line of credit is a revolving limit secured by your home. You draw what you need, pay interest on the amount drawn, and can repay and redraw at any time, often with no set repayment beyond interest.
Our loan structure page shows where each one sits in a typical setup.
| Factor | Loan split | Line of credit |
|---|---|---|
| How you draw | Redraw from the split | Draw against the limit at any time |
| Repayments | Interest-only for a set period, or principal and interest | Usually interest only, sometimes none until the limit is reached |
| Pricing | Usually in line with the lender's home loan pricing | Often priced higher than a standard split |
| Availability | Offered by most lenders | Offered by fewer lenders, often with tighter policy |
| Tracing | Clean if only ever drawn to invest | Clean only if never used for anything private |
| Temptation | Lower, redraw is a deliberate step | Higher, it can behave like a large credit card |
| Recycling in tranches | A new split per tranche, or redraw within one | Draw more as the home loan falls, if the limit allows |
Lender policy varies and changes. We check the current position for your situation rather than relying on any general rule.
The ATO looks at what borrowed money was used for. Where a loan is partly used for private purposes, only the interest on the investment portion is deductible, and the account has to be apportioned from then on.
That is the main risk with a line of credit. A single private purchase, or paying a bill from it once, turns a clean investment facility into a mixed one. Card-like access makes that slip easier than it is on a split, where redraw is a separate, deliberate step.
An illustration: a $100,000 line of credit drawn entirely to buy ETFs, then $5,000 drawn once for a car repair. From that point, roughly 5% of the balance is private and its interest is not deductible. Repaying the $5,000 does not simply undo it, because repayments into a mixed account are generally apportioned too. Your registered tax agent works out the split, year after year.
A split has the same rule, but the friction helps. Keep each investment split for investing only, and keep your everyday spending and offset against the home split. Our guide to redraw contamination covers the common ways a clean account gets mixed.
Many debt recycling setups run the investment borrowing interest-only, so the deductible balance stays intact and spare cash goes to the non-deductible home loan.
When an interest-only period ends, repayments rise. Planning for that date matters on either facility. Your financial adviser and registered tax agent confirm which repayment type suits your plan.
Lines of credit make one arrangement easy: letting the investment interest add to the balance instead of paying it, so every spare dollar goes to the home loan. Some people pitch this as a faster way to own your home.
The ATO has addressed it directly. In Taxation Determination TD 2012/1, it states that the general anti-avoidance rule, Part IVA, can apply to deny some or all of the interest deduction under these investment loan interest payment arrangements, and that a purpose of paying off your home sooner does not prevent that.
If anyone suggests capitalising investment interest, take it to your registered tax agent before you sign anything. We do not set up structures designed to capitalise interest for a tax benefit.
Paying the investment interest from your own income each month, from an everyday account, keeps the picture simple.
A master limit (sometimes called a portfolio facility) is one approved overall limit that holds several splits. You can open, resize or switch splits within the limit without a fresh application, as long as the total stays within it.
That suits recycling in tranches. With some facilities, as the home split falls, its limit can be moved across to the investment split without a new assessment. Terms vary by lender.
Our published master limit case study shows one in practice. At the time of that application, a couple refinanced to AMP under a $1,000,000 Master Limit at 79.49% LVR, with a $402,000 investment split interest-only for 10 years. The facility required a $10,000 line of credit as its primary sub-account, used to take up future redraw before it is moved between splits.
Master limits are offered by only some lenders, can cost more than a basic loan, and policies change. They are worth it when you plan to recycle repeatedly over many years.
We structure the lending, coordinate with your adviser and accountant, and tell you plainly when debt recycling is not the right fit.
Book a free call →For people recycling over many years, a master limit can combine both: term splits for the bulk of the borrowing and a small line of credit as the working account. Investors with property as well as shares can see how we handle multiple securities on our property investors page.
The facility matters less than how you use it. A split used carelessly loses its deduction just as fast as a line of credit, and a line of credit kept pure works well.
We compare what current lenders offer, check whether the facility you want will be approved, and set up the accounts so investment borrowing never shares space with private debt. For the wider set of features to look for, see our guide to loan features for debt recycling.
Already have a line of credit? If it has only ever been used to invest, it may be fine to keep. If it has been mixed, or it is priced well above your home split, moving the clean portion into a dedicated split can be worth pricing up with your tax agent's input.
Your financial adviser recommends the investments, and your registered tax agent confirms the tax treatment. We arrange the lending.
Not usually. A standard split with redraw does the same job for most people, tends to cost less, and is offered by more lenders. A line of credit suits people who invest in frequent small amounts and can keep it strictly for investing. The deciding factor is discipline, because one private purchase mixes the account.
It can be, to the extent the money drawn was used to buy income-producing investments. If any part was used for private purposes, only the investment portion is deductible and the account has to be apportioned. The facility type does not change the rule; the use of the money does. Your registered tax agent confirms the treatment for your situation.
Arrangements that let investment interest capitalise while your cash pays down the home loan have been addressed by the ATO in TD 2012/1, which says Part IVA can apply to deny some or all of the deduction. Wanting to pay off your home sooner does not protect the arrangement. Talk to your registered tax agent before considering it.
Yes, but from fewer lenders than in the past, and many have tightened who qualifies, the maximum limit or how long interest-only lasts. Policies vary and change, so a broker check of current options is the quickest way to know whether one is available for your situation.
A master limit is one approved lending limit that holds several splits. Within that limit you can open, resize or switch splits without a full new application, which suits recycling in tranches over many years. Only some lenders offer them, and terms differ. Our published case study shows one used for a $402,000 investment split.
Written and updated byAlex GeeDirector & Mortgage Broker, Kingfisher Finance Group
Reviewed byJessica MaraisMortgage & Finance Broker, Kingfisher Finance GroupA published case study of a master limit facility in practice.
Read more → GUIDEHow splits, tranches and redraw work together.
Read more → RESOURCEA one-page diagram of a clean split setup.
Read more →
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