Aussie Pay Calc

Debt Recycling Calculator

Calculate the tax benefits and financial impact of debt recycling your mortgage into income-producing investments. See your projected portfolio value, dividends, and tax savings year by year.

Your Details

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$
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$
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Marginal tax rate: 37.0%

Portfolio Value

$489,797

Year 10 Dividends

$17,443

Year 10 Tax Refund

$5,841

Net Positive In

1 year

After 10 Years: Recycling vs No Recycling

What if you used the same $100,000 initial + $5,000/yr to pay down your mortgage instead?

No Recycling

Mortgage Remaining

$450,000

Portfolio

$0

Net Worth Gain

$150,000

equity built in your home

Debt Recycling

Total Debt

$600,000

$313,619 mortgage + $286,381 investment loan

Portfolio

$489,797

Net Worth Gain

$489,797

equity + portfolio − invest loan

Debt recycling puts you $339,797 ahead

Key points

  • With debt recycling you owe more ($600,000 vs $450,000), but your $489,797 portfolio more than offsets the extra debt
  • By year 10, your investment generates $17,443/yr in dividends and $5,841/yr in tax refunds — ongoing passive income
  • $38,585 in total tax savings over 10 years because the investment loan interest is tax-deductible
  • Without recycling your mortgage drops to $450,000 — lower debt, but no investment portfolio or passive income
  • Debt recycling carries more risk — if markets fall, your portfolio drops but the investment loan remains

Positions

$0$98k$196k$294k$392k$490k1357910
PortfolioDebt RecycledNet Position

Cash Flow

$0$3k$7k$10k$14k$17k1357910
DividendsTax Refunds

Interest Split

$0$7k$14k$22k$29k$36k1357910
Tax-DeductibleNon-Deductible

Frequently Asked Questions

What is debt recycling?
Debt recycling is a strategy that converts your non-deductible home loan into tax-deductible investment debt. You make extra repayments on your mortgage, then immediately redraw the same amount and invest it in income-producing shares. Because the redrawn funds are used for investment purposes, the interest on that portion becomes tax-deductible. Over time, your non-deductible home loan shrinks while your deductible investment loan grows, and you build a share portfolio along the way.
Is mortgage interest tax-deductible in Australia?
Interest on your primary home loan is NOT tax-deductible in Australia. However, interest on money borrowed to produce assessable income (such as dividends from shares) IS deductible. Debt recycling exploits this by converting home loan debt into investment debt through the redraw mechanism. The ATO requires that the redrawn funds go directly to the investment — you cannot use them for personal expenses and claim the deduction.
How do franking credits help with debt recycling?
Australian companies pay 30% company tax before distributing dividends. Franked dividends come with credits for this tax already paid. When you receive franked dividends from your debt recycling portfolio, the franking credits offset your personal income tax. If your marginal rate is below 30%, you may receive a cash refund. This effectively boosts your after-tax dividend income, giving you more cash to recycle back into the strategy.
What are the risks of debt recycling?
Debt recycling increases your total debt and exposes you to share market risk. If the market falls significantly, your portfolio value drops but the investment loan remains. You could end up in a worse position than simply paying off your mortgage. The strategy works best with a long time horizon (10+ years), stable income, and the ability to service both the home loan and investment loan interest. It is not suitable for everyone — consider seeking professional financial advice.
Do I need a redraw facility for debt recycling?
Yes. Debt recycling requires a home loan with a redraw facility (not just an offset account). The redraw allows you to withdraw extra repayments you have made, creating the separate loan purpose that makes the interest tax-deductible. The ATO traces the purpose of borrowed funds, so the redrawn money must go directly to purchasing investments. Some lenders allow you to split your loan to keep deductible and non-deductible portions clearly separated.
What assumptions does this calculator make?
This calculator assumes constant interest rates, returns, and tax rates over the projection period. The investment loan is interest-only. Dividends and tax refunds can optionally be reinvested each year. Your marginal tax rate is derived from salary using current Australian tax brackets. It does not account for franking credits, CGT on sale, or changes in market conditions. This is for illustrative purposes only and is not financial advice.

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