Your home loan is probably the biggest debt you will ever have — but in Australia, it can also become your most powerful wealth-creation tool.
Debt recycling lets you transform that non-deductible mortgage into tax-deductible investment debt while systematically building a substantial share or property portfolio alongside it. When done correctly, you end up with little or no home loan and a seven-figure investment portfolio — all funded by your normal salary and the tax system.
Here’s exactly how to do it.
1. Start with the Right Mindset
Debt recycling is not about spending more money — it is about redirecting money you are already paying toward your mortgage into income-producing assets instead.
You do not need a massive income. You only need consistency, discipline, and a long-term horizon.
2. Build the Ideal Loan Structure
The foundation of successful debt recycling is a properly structured home loan:
- 100% offset account or full redraw facility
- Ability to split the loan into multiple portions
- At least one interest-only split (this becomes your investment debt)
- At least one principal-and-interest split (this remains your true home loan)
Most major banks and lenders offer this at no extra cost.
3. Accelerate Repayments into the Non-Deductible Portion
Direct every spare dollar — salary increases, bonuses, tax refunds — into either:
- The principal-and-interest loan portion, or
- The 100% offset account
This rapidly reduces non-deductible debt and creates clean, accessible equity.
4. Withdraw Only What You Have Repaid
Once equity is available, withdraw the exact amount of principal you have paid down.
This is the “recycling” step. Precision is non-negotiable — the withdrawn funds must be traceable directly to income-producing investments.
5. Invest Immediately and Wisely
Transfer the money straight to your brokerage account and purchase quality, income-producing assets.
Recommended investments for beginners and long-term recyclers:
- Low-cost ASX index ETFs (A200, IOZ, VAS, VGS)
- Diversified high-growth funds (VDHG, DHHF)
- Established Listed Investment Companies with strong dividend histories (AFI, ARG, BKI, WHF)
These assets generate franked dividends and long-term capital growth while satisfying the ATO’s income-producing requirement.
6. Claim the Tax Deduction Every Year
The interest on the recycled portion is now 100% deductible.
Higher-income earners (37% or 45% tax bracket) often find the strategy is cash-flow neutral or positive after tax savings and franking credits.
7. Compound the Process Over Decades
Repeat steps 3–6 continuously.
Each cycle:
- Reduces your non-deductible home loan
- Increases your tax-deductible investment loan
- Grows your investment portfolio through reinvested dividends and capital growth
After 15–25 years, the results are transformative.
8. Use Lump Sums to Accelerate Dramatically
Windfalls are pure rocket fuel:
- Pay the entire amount into the offset or P&I loan
- Immediately redraw and invest the same amount
- Convert tens or hundreds of thousands from non-deductible to deductible debt in a single transaction
9. Protect Yourself with Bulletproof Records
Maintain a simple but complete audit trail:
- Loan purpose register (Excel or template)
- Bank and brokerage statements showing timing and amounts
- Annual confirmation from your accountant
The ATO accepts correctly documented debt recycling without issue.
10. The Ultimate Payoff
When the time comes — retirement, downsizing, or financial independence — you:
- Sell the investment portfolio (pay discounted capital gains tax)
- Repay the investment loan in full
- Retain the surplus as tax-paid capital
Most families end up with:
- Little or no remaining home loan
- $1m–$3m+ in shares or ETFs
- Decades of legitimate tax deductions claimed along the way
Your home loan has effectively paid for both your family home and your retirement.
Who This Strategy Works Best For
- Homeowners with at least $100,000–$200,000 equity
- Stable dual or single income with some surplus cash flow
- 10–30 years until retirement or financial independence
- Comfortable holding quality shares or ETFs through market cycles
- Willing to follow a structured plan
Risks and How to Manage Them
- Market falls → Choose diversified, low-cost assets and stay invested
- Interest rate rises → Maintain a cash buffer and conservative borrowing
- Life changes → The strategy can be paused or slowed at any time
With proper planning, the long-term benefits far outweigh the risks.
Conclusion
Your home loan does not have to be a 30-year burden. With debt recycling, it becomes a 20–30-year wealth accelerator that is fully compliant, widely used by accountants and financial advisers, and uniquely powerful under Australian tax law.
At Stickman Wealth, we have helped hundreds of Australian families implement debt recycling the right way — from initial loan structuring through to retirement execution. We provide the templates, investment options, and ongoing support so you never have to worry about ATO compliance.
