For most homeowners, the primary goal is to pay off their mortgage as quickly as possible. While this is a sound approach, there is a more advanced strategy that can help you achieve this faster — and potentially build wealth at the same time. This strategy is called debt recycling.
What is Debt Recycling?
Debt recycling involves using the equity in your home to invest in income-producing assets while gradually converting your non-deductible mortgage into tax-deductible investment debt.
In simple terms:
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Bad debt = Your home loan (interest is not tax-deductible)
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Good debt = Investment loan (interest can be tax-deductible if structured correctly)
By shifting your debt from “bad” to “good,” you can make your money work harder for you.
How Debt Recycling Works
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Access Equity – Use available equity in your home as security for an investment loan.
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Invest – Place those funds into income-producing assets such as shares, ETFs, or managed funds.
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Direct Income to Mortgage – Use the investment income (and any potential tax savings) to pay down your home loan faster.
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Repeat – As your home loan decreases, you can increase your investment loan, continuing the cycle.
Potential Benefits
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Faster Mortgage Repayment – Investment income accelerates your ability to pay off your home loan.
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Wealth Creation – Investments have the potential to grow in value over time.
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Tax Efficiency – Interest on investment loans may be tax-deductible, depending on your jurisdiction and personal circumstances.
Risks to Consider
Debt recycling is not suitable for everyone. It involves investment risk, potential capital losses, and reliance on stable cash flow. You must also be comfortable with taking on and managing investment debt. Market downturns can impact your investment value and your repayment capacity.
Is Debt Recycling Right for You?
This strategy is best suited for financially disciplined borrowers with:
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Stable and reliable income
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Sufficient home equity
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A long-term investment horizon
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Tolerance for market fluctuations
Always seek professional financial advice to ensure this strategy aligns with your goals, risk tolerance, and tax situation.
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