Enter your home loan, rate and tax rate, and how much spare cash you can put through the loop each year. You'll see how quickly the home loan converts to investment debt, what the deduction is worth, and the return your investments have to beat for any of it to be worth doing.
The return to beat—Your investments need to earn more than this a year, before tax, to beat simply paying the same money off your mortgage. Franking credits and the capital gains discount lower it; your accountant can price those.
Year by year
Year
Home loan
Investment split
Deduction worth
The number the refund hides
A tax refund is the easy part to like, and it is not the part that decides anything. Every dollar you recycle is a dollar you could have used to pay the mortgage down, which saves interest at your full loan rate with no market risk and no tax on the saving, so the honest comparison is recycling against paying down, never recycling against doing nothing. Worked through, the tax rate cancels out of it: recycling only comes out ahead when the investments earn more, before tax, than the loan costs. That is the second box beside the results. Read it first.
A worked example, with the same round numbers the debt recycling guide uses, invented for illustration: a $500,000 home loan at 6.00%, a 32% marginal rate, $50,000 recycled a year and each refund put back through the loop. After five years about $259,786 of the loan is investment debt, the deduction is worth roughly $4,988 in year five, and the five years together come to about $14,774. None of it is a projection.
What this leaves out
The simplifications are stated so you can discount them: the investment split is treated as interest-only and interest runs on each year’s opening balance. Your normal home loan repayments are left out as well, although in practice they shrink the home loan faster on their own.
Our opinion, which some financial planners will argue with: for most households on the North Shore, the boring option in the second box wins more often than the marketing suggests, because a guaranteed return at the loan rate is a high bar to clear after fees and the odd bad year. Where recycling does make sense, it is a structure question as much as a tax one, and the lender you choose decides whether the splits stay clean. This page is general information, not advice. Your accountant rules on deductibility for your circumstances, and the investment lending page covers how we set the splits up.
Want the splits set up so your accountant can follow them?
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Why doesn't the calculator show investment returns?
Because any return we typed in would be a forecast, and the useful answer does not need one. Recycling beats paying the same money off your mortgage only if the investments earn more, before tax, than your loan rate. That is the number the calculator shows, and you can judge it without anyone guessing the market.
Is the interest on the investment split really deductible?
It may be. The ATO looks at what the borrowed money was used for, so interest on money drawn to buy income-producing investments can be deductible, while interest on your home loan is not. Keeping the two in separate splits is what makes that clean, and your accountant rules on it for your circumstances.
What tax rate should I enter?
Your marginal rate: the rate on your top dollar of income, plus the Medicare levy. The ATO publishes the resident brackets, and your latest assessment shows which one you fall in.
Why does paying the loan down count as the comparison?
Because it is the alternative. Every dollar you recycle is a dollar you could have used to reduce the mortgage, and that saves interest at your full loan rate with no tax on the saving and no market risk. Recycling has to beat that, not beat doing nothing.
Does it matter which lender I use?
More than most people expect. The structure depends on clean loan splits, easy redraw into a genuinely separate facility, and statements your accountant can follow. Some lenders limit the number of splits or charge to restructure, which is worth knowing before you start rather than after.