Reduce non-deductible debt while building an investment portfolio
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You have worked hard to buy your home. Now you are thinking about what comes next: reducing your mortgage, investing for the future, or both.
Debt recycling can connect those goals. It involves paying down part of your home loan, then borrowing that amount again for income-producing investments. Interest on that investment borrowing may be tax deductible, depending on how the funds are used and your circumstances.
At Debt Recycling Loans, we help home owners understand the lending options and structure their loans to support an agreed strategy. We start with your existing mortgage, your cash flow and what you want to achieve.
The interest on a loan used to buy the home you live in is generally a personal expense. It is usually not tax deductible.
Interest on money borrowed for an eligible income-producing investment may be deductible. Debt recycling progressively changes the purpose of part of your borrowing by repaying personal debt and borrowing again for investment.
The tax treatment follows how the borrowed money is used. Using your home as security does not, by itself, make the interest deductible. It is the interest that may qualify for a deduction, rather than the amount you borrow or repay.
That makes the loan structure and transaction history central to the strategy.
The details depend on your lender and the advice you receive, but a typical arrangement follows these steps.
Your loan is structured with distinct accounts or splits so personal borrowing can be kept separate from investment borrowing.
Savings or surplus cash are used to reduce a designated portion of your personal mortgage. Your emergency reserve and upcoming expenses need to be considered before deciding how much to use.
Subject to the lender's terms, the repaid amount is borrowed again and used for an eligible income-producing investment. Clear records should show where that money went. A redraw is treated as a separate borrowing, so its use matters for interest deductibility.
After allowing for investment expenses, tax and loan commitments, you may direct surplus investment income and any available tax savings towards the remaining personal mortgage.
Further amounts can be considered as your finances allow. Each stage should fit your cash flow, investment plan and lender requirements.
We help establish the lending arrangements. Your accountant confirms the tax treatment, and a licensed financial adviser can assess whether borrowing to invest suits you.
Imagine you have a $600,000 home loan and $50,000 in savings available to invest, separate from your emergency reserve.
With an appropriate loan structure, you repay $50,000 of personal mortgage debt, then borrow $50,000 again through a separate split to buy eligible income-producing investments.
| Position | Before recycling | After recycling |
|---|---|---|
| Personal home loan debt | $600,000 | $550,000 |
| Separate investment borrowing | $0 | $50,000 |
| Total loan debt | $600,000 | $600,000 |
You now hold investments purchased with the $50,000 borrowing. Interest on that split may qualify for a deduction.
Your total debt has stayed the same in this example. The change is that $50,000 has moved from personal borrowing to investment borrowing. Your money is now exposed to investment risk.
If the savings were previously in an offset, moving them also removes their interest-saving benefit. That needs to be included when comparing your options.
This example illustrates the structure only. It excludes fees, interest, tax and investment movements. The lender must permit the repayment and subsequent borrowing; some loan accounts close when fully repaid.
Owning a home is only the starting point. A useful assessment also considers whether you have:
Your future plans matter too. A home upgrade, parental leave, reduced working hours or approaching retirement could change what is affordable.
If repayments already stretch your budget, building a stronger cash position may take priority. We begin by understanding what your lending needs to support.
There is no single equity figure that makes debt recycling suitable.
Equity is the difference between your property's value and the debt secured against it. The amount a lender will let you access also depends on its valuation, loan-to-value limits, your income and its lending policy.
For debt recycling, the ability to repay and borrow again can matter as much as your equity position.
Simply releasing equity to invest increases your borrowing. A repayment-and-reborrowing strategy can change the composition of existing debt without increasing its total, as the example above shows. We assess the proposed arrangement so you understand which approach you are considering.
An offset holds your savings in a separate account and reduces the loan balance used to calculate interest. Redraw gives you access to extra repayments already made into the loan, subject to the lender's rules.
That difference matters when investing:
Before moving money, have the transaction sequence checked. This is particularly relevant if you may later move out and rent your current home.
Available surplus cash can be directed towards the debt associated with your home.
You can work towards investment goals while managing your home loan, rather than treating them as two unrelated decisions.
Where interest deductions are available, they can reduce the after-tax cost of investment borrowing. The value depends on your tax position.
These are potential benefits. A deduction covers only part of an expense, and investment results determine whether the broader strategy adds value.
Borrowing to invest carries significant risk. Investments can fall in value, income can be lower than expected, and interest rates can rise. You still owe the loan when returns disappoint.
If the borrowing is secured against your home, failing to meet repayments can put your home at risk. A tax benefit does not remove that exposure.
Your assessment should allow for weaker returns, higher repayments and changes to household income. It should also compare debt recycling with alternatives, such as retaining savings in an offset or reducing your mortgage without reborrowing.
A competitive rate matters. So does being able to carry out your plan.
We review your existing loan and the features needed for the proposed arrangement, including:
We also help you understand how the accounts operate once established. Clear lending arrangements make it easier for you and your accountant to track the borrowing.
We discuss your mortgage, income, savings and goals, including any upcoming changes that could affect your borrowing.
We check whether your current lender can support the proposed structure and whether another option warrants consideration.
Your accountant checks the tax implications. Your financial adviser assesses the investment strategy. We focus on the lending needed to support that advice.
Where an application is required, we prepare the lending submission, liaise with the lender and explain the approval conditions.
We explain the approved splits and loan features so the agreed transaction sequence can be checked before implementation.
Debt recycling requires attention to how a loan works in practice.
Our team brings experience across debt recycling, investment lending, self-employed borrowers and complex finance scenarios. Led by Alex Gee, founder of Kingfisher Finance Group, we take the time to understand the purpose behind your borrowing and explain the structure clearly.
You should know who is handling your application and how the proposed lending supports your plans.
No. Debt recycling can be considered while you continue living in your home. However, borrowing secured against it means the property remains exposed if you cannot meet your loan commitments.
Potentially. Borrowed funds may be used for eligible income-producing shares, funds or rental property. The investment choice, ownership and tax treatment need to be assessed separately from the loan.
If you are considering residential property, factor in the negative gearing changes taking effect from 1 July 2027. Losses from certain established properties will be restricted to residential property income, rather than salary and wages. Capital gains tax changes also affect long-term investment modelling, including shares. Your accountant should check the acquisition dates, property type and transitional rules that apply.
Not necessarily. Your existing lender may offer suitable splits and borrowing features. If refinancing is worth considering, compare the total costs and avoid unintentionally extending the time it takes to repay your debt.
It may help reduce the non-deductible portion faster if surplus income and tax savings are applied to it. The outcome depends on repayments, investment performance, interest rates and costs.
Investment debt can remain after your personal mortgage is repaid. Both balances need a repayment plan.
No. Debt recycling describes repaying personal debt and borrowing again for investment. Negative gearing describes an investment whose deductible expenses exceed its assessable income.
A debt recycling arrangement does not have to produce an investment loss to work.
Costs depend on your existing loan and the changes required. They may include lender fees, refinancing expenses, fixed-rate break costs, and accountant or financial adviser fees.
Ask for the lending costs and any broker fees or commissions to be explained before committing. Include investment costs when assessing the overall strategy.
Selling can change the use of the borrowed funds and the ongoing interest deduction. Check with your accountant before directing the proceeds to personal spending or another investment, and include any capital gains tax in your planning.
Your latest home loan statements, approximate property value, savings balance, income details and regular expenses are a useful start. Let us know about fixed-rate loans, previous redraws and any plans to move home.
Start with your current position and a clear explanation of the lending options. We help home owners across Australia explore how a debt recycling loan structure could fit their plans, alongside advice from their accountant and financial adviser.
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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.
