What Australian Homeowners Need to Know Right Now
Interest rates are significantly higher than they were during the decade of low rates. Many homeowners are asking: “With variable rates sitting at 6–7%, is debt recycling still safe — or even worthwhile?”
The short answer: Yes — it remains very safe and highly effective for most disciplined homeowners, provided you apply the right safeguards.
Here’s exactly how to assess it and what to adjust when rates are elevated.
1. Higher Rates Change the Numbers — They Don’t Break the Strategy
The fundamental mechanics of debt recycling are unchanged:
- You are still converting non-deductible debt (currently costing 6–7%) into deductible debt (effective cost slashed by tax and franking credits).
Typical net cost today (6.7% variable rate):
- Gross interest: 6.7%
- Tax deduction (37% + 2% Medicare levy): –2.6%
- Franking credits on a typical portfolio: –1.8% to –2.5%
- Net effective borrowing cost: 1.6% – 2.3%
Quality Australian shares and ETFs have still delivered 8–10% long-term average returns. The spread remains strongly positive.
2. History Proves It Works in High-Rate Environments
Debt recycling has been used successfully through every previous high-rate cycle in Australia:
- Late 198 1980s (rates up to 17%)
- 2000–2008 (rates 7–9%)
- The current tightening cycle
In every case, those who stayed disciplined and kept reasonable buffers came out far ahead.
3. The Real Risk Is Cash Flow — Not the Rate Itself
High rates don’t force you to sell assets. Running out of cash flow does.
Protect yourself with these non-negotiable buffers:
- Limit total recycled (deductible) debt to 50–60% of your home’s value while rates are elevated
- Keep 9–12 months of expenses in cash or offset (double the usual buffer)
- Slow your recycling pace (e.g., $15,000–$20,000 per year instead of $40,000+)
- Consider fixing part or all of the investment loan portion for 1–5 years if it helps you sleep
4. Simple Stress-Test Questions
Ask yourself these three questions honestly:
- If rates rose another 2–3%, could I still service everything comfortably from salary?
- If the share market dropped 30–40%, would I be forced to sell assets?
- Do I have stable income for the next few years?
If you can answer “yes, easily” to all three, debt recycling is very safe for you right now.
5. Smart Adjustments Successful Recyclers Are Using Today
- Temporarily favour higher-yielding, lower-volatility assets (LICs such as AFI, ARG, BKI, WHF)
- Pause new recycling during the peak of rate pressure and resume when the RBA begins cutting
- Use the offset account as a powerful shock absorber — every dollar in there saves 6–7% pre-tax
6. When You Should Genuinely Pause
Debt recycling is probably not safe at this moment if any of these apply:
- Less than 9–12 months of expenses in liquid savings
- Single-income household with uncertain job security
- Already geared above 70–80% of property value
- Planning to sell or move house within five years
- High emotional discomfort with shares or debt
In these cases, simply park surplus cash in the offset and wait for conditions to improve.
7. The Cost of Waiting for “Lower Rates”
Every year you sit on the sidelines is a year you miss:
- Converting non-deductible debt to deductible
- Compounding growth and dividends
- Franking credit refunds
- Building a larger ultimate portfolio
Those who start (or continue) modestly during high-rate periods and accelerate when rates fall almost always finish far ahead of those who try to time the cycle perfectly.
Conclusion
Debt recycling is not only safe during periods of elevated interest rates — for well-prepared, disciplined homeowners it remains one of Australia’s most powerful and legitimate wealth-creation strategies.
The key is respect for the environment: borrow conservatively, maintain strong buffers, and adjust your pace — but do not abandon the plan entirely.
At Stickman Wealth, we have guided hundreds of clients through every interest-rate cycle over the past 15+ years. We run detailed stress-tests, build rate-resilient structures, and help you decide exactly how fast to recycle in the current climate.
