Shares and ETFs are the most common asset for debt recycling: liquid, divisible and income-producing. We structure the loan so the strategy stays clean and the interest stays deductible. Your financial adviser recommends what to buy.
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Debt recycling works by borrowing against your home equity to buy an income-producing, growth investment, then using the income to pay down your non-deductible home loan faster. The asset you buy matters, and for many households a diversified portfolio of shares and exchange-traded funds (ETFs) is a natural fit.
Shares and ETFs are liquid, divisible and low-cost, which makes them well suited to a strategy that is built and unwound in stages. You can invest a small parcel to start and add to it each year as more equity becomes available, without the large, lumpy transaction costs that come with property. If your circumstances change, a listed portfolio can generally be sold in part or in full within a few business days.
They also tend to produce regular income. Many Australian shares and ETFs pay dividends, and where those dividends carry franking credits, part of the tax already paid by the company can flow through to you. That income is exactly what a debt recycling strategy needs, because it is redirected against the home loan to accelerate the payoff.
The key features that suit recycling: liquidity (easy to buy and sell), divisibility (invest in small parcels over time), franked income (regular, tax-effective cash flow), and low ongoing cost compared with a single geared property.
The mechanics sit in the loan structure, and this is the part we handle. In most cases we arrange a separate, dedicated investment split against your available home equity, kept entirely apart from the loan on your family home.
We refinance or restructure your existing home loan so there is a clean, separate loan split sized to the equity you want to put to work. This split exists only to fund investments.
Funds from the investment split are used to buy the portfolio your adviser has recommended. The aim is a direct, traceable line from the borrowed money to the income-producing asset, with nothing else mixed in.
Dividends and distributions are directed towards your non-deductible home loan, shrinking the balance that is costing you after-tax dollars while the investment loan stays in place.
As the home loan falls and your equity rebuilds, we can increase the investment split and repeat the cycle in stages. Debt recycling is generally a multi-year strategy, not a single event.
The way the split is set up, whether interest is paid from a separate account, and how redraw and offset features are arranged all affect how clean the strategy stays. Our loan structure page walks through the split-loan approach in detail, and most clients reach a share-based strategy by refinancing for debt recycling.
For the interest on the investment split to be deductible, the borrowed money generally needs to be used to produce assessable income, and you need to be able to show that. Shares and ETFs make that trail relatively straightforward, provided the loan is not contaminated along the way.
The most common way people undermine deductibility is by mixing borrowed investment money with everyday money, or by parking funds in a redraw and then using them for personal spending. Once deductible and non-deductible borrowings are blended in the same split, separating them for tax purposes becomes difficult and, in some cases, the deduction can be lost.
We reduce that risk by keeping the investment split single-purpose and by structuring the flow of funds so the connection between the loan and the portfolio stays clear. Good record keeping on your side matters too: the buy contracts, the loan statements and the dividend records together tell the story. Our guides on redraw contamination and record keeping for debt recycling go deeper, and your registered tax agent should confirm how the rules apply to you.
The income side is where a share portfolio earns its place in a recycling strategy. Dividends and ETF distributions arrive through the year, and franking credits can improve the after-tax value of that income for many investors.
In a typical structure, that income is not reinvested automatically: it is directed at your non-deductible home loan. Every dollar that clears the home loan is a dollar you are no longer paying non-deductible interest on, while the deductible investment loan remains. Over several years, that steady redirection is what turns a home loan into an investment loan of the same size, which is the heart of the strategy.
How franking credits ultimately affect your position depends on your marginal tax rate and your overall situation, so treat the tax outcome as something to confirm with a registered tax agent rather than assume.
Recycling into shares and ETFs suits some households far better than others. Broadly, it works best when you have surplus cash flow, a stable income and a long enough horizon to ride out market movements.
To weigh it up properly, it helps to understand how much equity you need and whether the numbers stack up for you. Our free estimate is a sensible first step.
This is an important line to be clear about. We are mortgage brokers: we arrange and structure the lending that makes debt recycling possible. We do not recommend specific shares, ETFs or portfolios. Which assets to buy, how to diversify, and how much market risk to take are decisions for your financial adviser, who considers your goals, risk profile and full circumstances.
If you do not have an adviser, we are happy to work alongside one you engage. The two roles fit together neatly: the adviser designs the portfolio, and we build the loan structure that funds it cleanly and keeps the strategy sound.
A note on advice. This page is general information only. It is not personal financial, investment or tax advice. Investing borrowed money magnifies both gains and losses, and shares can fall in value. Before acting, speak with a licensed financial adviser and a registered tax agent about your own situation.
Assume, purely for illustration, a homeowner draws a $100,000 investment split against their equity and their adviser builds a diversified share and ETF portfolio with it. If that portfolio produced roughly $4,000 of dividends in a year, that income could be redirected to the non-deductible home loan while the investment loan interest is potentially deductible. These are round, hypothetical figures with stated assumptions, not a quote, forecast or promise. Your actual income, costs, tax outcome and returns will differ.
Get a free, no-obligation estimate, or talk it through with a licensed broker.
Book a free call →No. We arrange and structure the lending. The choice of shares, ETFs and portfolio mix is made by your financial adviser, who assesses your goals and risk profile. We are happy to coordinate with an adviser you engage.
Generally yes, and this is one of the advantages of a listed portfolio. Debt recycling is typically staged over several years, so the investment split can often be increased as your home loan falls and equity rebuilds.
Interest on money borrowed to produce assessable income is generally deductible, but this depends on the loan being used and documented correctly. A registered tax agent should confirm your position. Our record-keeping and contamination guides explain the common pitfalls.
In a typical structure, dividends and distributions are redirected to your non-deductible home loan to pay it down faster, rather than being reinvested automatically. How franking credits affect you depends on your tax situation.
The split-loan approach that keeps a strategy clean.
Read more → GUIDEAn educational comparison of the asset options.
Read more → GUIDEThe mistake that can cost you the deduction.
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