Debt Recycling: A Smart Strategy for Australian Homeowners
Debt recycling for Australian homeowners is a smart financial strategy—especially for those who have recently repatriated and still hold a mortgage. Now that you’re earning taxable income in Australia again, this approach can help make your home loan work harder by converting part of it into tax-deductible investment debt. As a result, it can reduce your taxable income while helping you build long-term wealth through strategic investments.
Jeremy Harper, Managing Director at Atlas Mortgages, provides a snapshot overview of Debt Recycling and how it can work for you.
Click here to book a consultation with Jeremy and explore how these changes could benefit your property strategy.
How Does Debt Recycling Work?
Debt recycling is suitable for homeowners who have already paid down a portion of their mortgage or have extra funds in their offset account. Here’s how it works:
- Equity Access – If you have built up equity in your home, you can reborrow a portion of it.
- Investment Use – The borrowed amount must be used for an income-generating purpose, such as investing in shares or property.
- Tax Deduction – Since the borrowed money is used for investments, the interest on this new loan portion becomes tax-deductible.
Example:
- A homeowner initially took out an $800,000 loan.
- Over time, they reduced it to $600,000 by making repayments.
- This means they have $200,000 in equity available.
- They can borrow this $200,000 and invest it in income-generating assets.
- Since the loan is now used for investment purposes, the interest on this amount may be tax-deductible.
Who Can Benefit from Debt Recycling?
This strategy is best suited for:
- Homeowners in major cities who have built significant equity.
- Working families with higher incomes who can manage additional debt.
- Those looking to invest for long-term financial growth.
Who Should Avoid Debt Recycling?
This strategy may not be suitable for:
- First-time borrowers with a high Loan-to-Value Ratio (LVR).
- Individuals with lower taxable incomes or those just starting their careers.
- People nearing retirement who have lower taxable incomes and may not benefit from the deductions.
Final Thoughts on Debt Recycling for Australian Homeowners
Debt recycling can be a powerful tool to manage your mortgage and build wealth. However, it carries risks, including market fluctuations and increased debt obligations. If you’re considering this strategy, consult a financial adviser to ensure it aligns with your financial goals.
Contact us for a free consultation and learn more about Atlas Mortgages.
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