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 fair 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.