Debt Recycling Calculator.
Turn a home loan into a deductible one, without borrowing more.
Debt recycling converts a home loan you cannot deduct into an investment loan you can, without borrowing an extra dollar. This calculator runs the same cash through three strategies, paying down the loan first, investing the surplus, or recycling, and shows you the difference in dollars. It also shows you the conditions under which recycling loses, because they exist.
Your position
Recycling finishes ahead
Both strategies use exactly the same cash and your total debt never increases. The gap comes from two things: interest on the investment split is tax deductible while home loan interest is not, and recycling puts your money into the market years earlier. Over 20 years, those two effects compound into the figure above.
Pay the loan down first
$826,860
Invest, no recycling
$1,018,860
Debt recycling
$1,415,059
Break-even return
4.72%
The hurdle
Your investments need to earn a total of 4.72% a year, growth and dividends combined, just to match paying down the loan first. Anything above that number is what recycling actually earns you. Anything below it and you would have been better off with the boring option. You have assumed 8.50%.
Below the hurdle the strategy costs you money, and the deduction does not rescue it. The hurdle rises with your loan rate and falls with franking.
The mistake that cannot be undone
One transfer can poison the whole loan.
The deduction depends entirely on where the redrawn money goes the moment it leaves the loan. If it lands in an everyday account holding even a dollar of private money, the ATO treats the loan as mixed, and it stays mixed. Every interest payment must then be apportioned between the deductible and private portions for the life of the loan, and you cannot untangle it by repaying the private part first. This is set out in taxation ruling TR 2000/2, it is permanent, and it is the single most common way debt recycling goes wrong. Before you move a single dollar, put the transaction path in front of your accountant.
What it looks like when it goes wrong
Most calculators show you one future and it is usually a kind one. A strategy you would carry for twenty years needs to survive the unkind ones, so here is your result again under conditions that have all happened before.
A lost decade
2% total return
−$246,982
vs clearing the loan
Rates at 9%
home 9%, split 9.3%
+$272,157
vs clearing the loan
Income halves
surplus stops
+$254,502
vs clearing the loan
How this is calculated＋
Three strategies are modelled monthly and each one spends exactly the same cash: the minimum home loan repayment plus your surplus. Only the destination differs. Paying the loan down first then invests the same money once the loan is gone, so it is not left sitting idle.
- Recycling never increases your total debt. It converts it: the principal you repay is redrawn as a separate deductible split, so the balance moves from one loan to the other and the total stays where it started.
- Tax uses the 2026-27 resident rates, 0 / 15 / 30 / 37 / 45 per cent plus the 2 per cent Medicare levy, with the legislated drop to 14 per cent from 2027-28 included.
- Dividends are grossed up for franking credits at the 30 per cent company rate and the credits are treated as refundable. Selling at the end applies the 50 per cent capital gains discount.
- Not modelled: Division 293, HECS or HELP repayments, the Medicare levy surcharge, transaction costs, and any change to tax law. Returns are assumed to be smooth, which markets are not.
The calculator can tell you what the numbers do. It cannot tell you whether they are your numbers.
Talk to Wealth →This calculator provides general information only. It is not personal financial, tax or credit advice and does not take into account your objectives, financial situation or needs. Results are estimates produced from the assumptions displayed on this page, all of which you can view and change, and from Australian resident tax rates for the 2026-27 financial year. The default assumptions are illustrations, not predictions, and are not a recommendation of any product or strategy. Actual outcomes will differ, and assumed returns are not indicative of future returns. Tax outcomes, including the deductibility of interest, depend on your circumstances and on how a strategy is implemented. Before acting on any result, consider its appropriateness for your circumstances and consider obtaining advice from a licensed financial adviser and a registered tax agent. Where you go on to speak with LINK Wealth, Link Wealth Pty Ltd (CAR 1312767) and Richard Leal (AR 327265) are authorised representatives of Millennium 3 Financial Services Pty Ltd (ABN 61 094 529 987), AFSL 244252. This calculator is published by The Link Collective Pty Ltd (ABN 63 620 787 742).
Questions people ask
- Is debt recycling worth it?
- It depends on one comparison: whether your investments can out-earn the guaranteed, tax-free return of paying down your mortgage. The calculator puts a number on that hurdle, and on the default inputs it is a total return of about 4.7 per cent a year, then lets you test it against your own rate, income and time frame. Whether a given portfolio can reasonably clear that hurdle, and whether you would hold it through a downturn while carrying the debt, is a judgement about you rather than about the maths.
- When should you not debt recycle?
- The clearest case is the one the calculator shows: when expected returns sit below the break-even rate, paying down the loan simply wins. Beyond the maths, debt recycling sits badly with unstable income, a short time horizon, a plan to sell or move soon, a low marginal tax rate that shrinks the deduction, or any real chance you will need the invested money back. It also sits badly with anyone who would sell in a downturn, because the debt remains whether the portfolio recovers or not.
- Does debt recycling increase your repayments?
- It does not increase your total debt. The strategy converts part of your home loan into an investment split of the same size, so you owe the same amount, structured differently. Your total interest bill can rise slightly if the split is priced above your home loan rate, and your month-to-month payments depend on whether the split is principal and interest or interest-only. Getting that structure right is lending work, and it is what LINK Advance is for.
- Do I need an accountant for debt recycling?
- In practice, yes. The entire benefit rests on the interest being deductible, and deductibility follows the exact path the borrowed money takes, under rules the ATO applies strictly. One redraw into the wrong account can permanently contaminate the loan, and you will also need clean records for every year you claim. LINK Advisors reviews the transaction path before any money moves and handles the deduction at tax time.
- Is debt recycling legal in Australia?
- Yes. It does not rely on a loophole. It relies on a long-standing principle of Australian tax law, that interest on money borrowed to produce assessable income, such as dividends, is deductible. The ATO ruling TR 2000/2 sets out how this applies to redraw facilities. What the law cares about is the use of each borrowed dollar, which is why the execution matters far more than the idea. Done with a clean split and a clean paper trail it is orthodox. Done sloppily, the deduction fails.
- Can I use my offset account for debt recycling?
- An offset account is usually where the story starts, since it is where surplus cash tends to sit. The standard mechanics are to move that cash into the home loan as a genuine repayment, then redraw it through a separate loan split and send it directly to the investment. The offset itself is the danger zone: redrawing borrowed money back into an offset holding your salary and savings mixes private and investment funds, and the deduction is compromised for the life of the loan.
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