Both let you borrow to invest in shares. A margin loan is secured by the shares it buys, while debt recycling borrows against your home and swaps home loan debt for investment debt.
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A margin loan and debt recycling can both fund a portfolio of shares or exchange-traded funds (ETFs) with borrowed money. The difference is what the lender holds as security, and what happens when markets fall.
Debt recycling starts with a home loan. As our guide to debt recycling explains, you pay down the home loan and borrow the same amount back through a separate split to invest.
A margin loan starts with the investments. The lender advances money to buy shares, ETFs or managed funds, and those investments become the security for the loan.
| Margin Loan | Debt Recycling | |
|---|---|---|
| Security | The shares or funds you buy | Your home |
| Needs a home | No | Yes, with a home loan |
| Margin calls | Yes, if the loan-to-value ratio (LVR) goes above the agreed level | No. The loan is not tied to the portfolio value |
| Total debt | Rises by the amount borrowed | Stays the same when existing home debt is recycled |
| Interest deduction | May be deductible when the money buys income-producing investments | The same test, applied to the investment split |
| Main risk to manage | Forced selling in a falling market | Repayments on investment debt secured by your home |
Margin lenders require you to keep the LVR below an agreed level, which Moneysmart says is usually 70%. The LVR is the loan divided by the value of your investments.
The LVR rises when the portfolio falls in value or the loan grows. If it goes above the agreed level, you get a margin call and generally have 24 hours to bring it back down. You can:
If you cannot lower the LVR, the lender will sell some of your investments to do it.
These figures are assumed and illustrative only. You hold a $100,000 portfolio with a $60,000 margin loan, an LVR of 60%, and the agreed level is 70%.
The market falls and the portfolio is now worth $80,000. The LVR is 75%, so a margin call follows.
You could repay $4,000 of the loan to get back to 70%. Selling shares instead means selling about $13,300, because each sale also lowers the portfolio value.
An investment split is secured by your home, not by the portfolio. A fall in the share market does not trigger a call for cash or a forced sale.
That does not remove the risk. The loan balance stays the same while the portfolio is worth less, and the repayments are still due. Moneysmart notes that when your home secures a loan to invest, you could lose it if the investment turns bad and you cannot keep up with repayments.
If you plan to invest in shares or ETFs, our page on debt recycling with shares and ETFs shows how the split is drawn and kept apart from the home loan.
Margin loans and home loans are separate products with separate pricing, and an investment split can be priced differently from your home split. Compare the comparison rates and fees for the exact loans you would use, not headline rates.
Moneysmart suggests a simple test. Borrowing to invest only makes sense if the after-tax return is greater than all the costs of the investment and the loan. It also suggests checking that you could still afford the repayments if rates rose by 2% or 4%.
The Australian Taxation Office (ATO) allows a deduction for interest on money borrowed to buy shares, provided it is reasonable to expect assessable dividends. Where a loan is also used for private purposes, only the part used to buy the shares can be claimed.
That test looks at what the money was used for. Interest on a margin loan and on an investment split can qualify on the same basis, and our article on whether debt recycling is tax-deductible covers the purpose test in more detail.
Kingfisher Finance Group arranges the lending. Whether the interest is deductible in your circumstances is a question for your registered tax agent or accountant.
A margin loan adds new debt to any home loan you already have. Debt recycling converts debt you already have. The home split falls and the investment split rises by the same amount, so total debt stays where it was.
Some people also release extra equity to invest a larger amount at the start. That adds debt in the same way a margin loan does, only with your home as security.
Both carry the usual risks of borrowing to invest: larger losses in a falling market, higher repayments if rates rise, and investment income that can fall or stop.
Debt recycling only works if the investment split stays separate from the home loan. Our page on how we structure the loan sets out each step.
Kingfisher works alongside your accountant and financial adviser. We do not recommend investments or give tax advice.
A margin loan uses your portfolio as security and can force a sale when markets fall. Debt recycling uses your home as security, has no margin calls and keeps total debt the same, but puts your home behind the investment debt. Settle the investment plan with your adviser and the tax position with your accountant, then compare the real cost of each loan before you borrow.
We check whether your home loan can be split for investing and arrange the structure before any money moves.
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Written and updated byAlex GeeDirector & Mortgage Broker, Kingfisher Finance Group
Reviewed byJessica MaraisMortgage & Finance Broker, Kingfisher Finance GroupNot necessarily. Margin loans and investment splits are priced as separate products, so compare the comparison rates and fees for the exact loans you would use.
No. The investment split is secured by your home, not by the portfolio. The repayments are still due if the portfolio falls.
Moneysmart says you generally have 24 hours to bring the LVR back to the agreed level. If you cannot, the lender will sell some of your investments.
It can be. The ATO allows a deduction for interest on money borrowed to buy shares where it is reasonable to expect assessable dividends. Your accountant confirms your position.
Yes. Debt recycling converts non-deductible home loan debt into investment debt, so it needs a home loan to start from.
It is possible, but it adds to your total borrowing and your exposure to the share market. Whether that suits you is a question for your financial adviser.
Debt recycling into a diversified share and ETF portfolio: liquid, low-cost and income-producing. How we structure the loan for a share-based strategy.
Read more → GUIDEAlready own shares or ETFs? What to review with your broker, accountant and adviser before changing your loans to debt recycle, with a client example.
Read more → GUIDEUnderstand debt recycling risks, including market falls, higher rates, cash-flow pressure, tax errors and using your home as security.
Read more →
1. Arranged a loan when our small business situation made it difficult to qualify.
2. Met requirements to have funding available by a specified date.
3. Understood my needs to setup debt recycling to allow tax structuring.
4. Communicated well throughout.
I would use their services again.
Alex, Jess and the Kingfisher team were second to none and their process from start to finish was faultless. As a self-employed business owner, it can be difficult to obtain finance at the best of times. The Kingfisher team made this an easy and efficient proposition and their continued transparent and efficient communication ensured we were kept up to date at all times. Highly recommend them for your finance needs!
Alex and Jess dealt with our investment loan and provided a top tier service. They kept us up to date and communicated every step of the process making it a seamless and smooth experience! Awesome work team we will definitely be back for future loans!
Jess from Kingfisher was outstanding. I couldn't fault her communication, expertise or dedication to finding the best loan for our situation. The entire process was seamless from start to finish. We'll definitely be using Kingfisher again in the future. A top-tier organisation.
