Guide · updated 8 August 2026 · LINK Wealth
Maximise wealth through debt recycling.
Debt recycling is the strategy of paying down your non-deductible home loan and re-borrowing the same amount to invest in income-producing assets, converting "bad" debt into tax-deductible investment debt while a portfolio builds. It is legal, uses ordinary loan features, and works when your long-run investment return beats your mortgage rate. It adds risk: you are investing with borrowed money against your home.
For many Australians, the family home is their single biggest asset. Yet, despite its size and importance, most people don’t realise that their home can also be a powerful tool to grow wealth, save on tax, and even pay down your mortgage faster.
Typically, mortgage holders focus on paying off the home loan as fast as possible and stop there. While being debt-free is appealing, it can mean missing out on one of the most effective wealth creation strategies available: Debt Recycling.
What is Debt Recycling?
Debt recycling is a strategy that allows homeowners to use the equity in their property to invest in income-producing assets, while at the same time reducing their home loan.
Here’s how it works in practice:
- You pay down part (or all) of your non-deductible home loan.
- You then re-borrow against the equity in your home at home loan interest rates.
- The borrowed funds are invested into assets such as shares, managed funds, or an investment property.
- Because the funds are invested, the interest becomes tax-deductible.
- The income (e.g., dividends or rent) from those investments can then be used to accelerate repayment of the home loan.
- The more you pay down your non-deductible home loan, the more equity you can re-draw to purchase more investments, accelerating the strategy.
This process effectively turns non-deductible debt into deductible debt, creating tax benefits while simultaneously building wealth.
A Simple Example
Imagine you own a home worth $1 million, with a remaining mortgage of $300,000. That gives you $700,000 in equity.
If you refinance and borrow $200,000 against your home, you could invest that into a diversified share portfolio. The dividends from those shares could then be directed back into your mortgage, helping you pay it down faster.
At the same time, because the $200,000 was borrowed to invest, the interest is tax-deductible. This improves your after-tax cash flow and accelerates the cycle of building wealth while reducing personal (non-deductible) debt.
Why Homeowners Miss This
Most homeowners think of their mortgage as a burden they need to eliminate before they can start investing. In reality, the equity in your home can be unlocked while you’re still paying it off, giving you a head start on wealth creation that could otherwise take decades to begin.
It’s one of the biggest missed opportunities in personal finance.
Other Ways to Make Your Home Work Harder
While debt recycling is a powerful strategy, it’s not the only one. Depending on your circumstances, you may also want to consider:
- Offset accounts and redraw facilities – simple tools that can reduce interest and help manage cash flow.
- Refinancing for better loan structures – splitting loans to make it easier to recycle debt.
- Leveraging for property investment – using equity to purchase additional property for capital growth.
Each of these approaches relies on the same principle: your home is more than a place to live – it’s a financial resource that can be optimised.
The Risks to Be Aware Of
Any strategies that involve borrowing come with risks. Interest rates can rise, markets can fall, and cash flow can come under pressure.
Handled poorly, debt recycling can put unnecessary stress on your household finances. But handled well, with the right structures in place, it can be a game-changing wealth strategy.
That’s why it’s critical to get advice before implementing this kind of approach. At LINK, we help clients weigh up the benefits, risks, and suitability of strategies like debt recycling, and put the right safeguards in place.
Is This Strategy Right for You?
Debt recycling is generally most effective for wealth accumulators: people in their 30s to 50s who:
- Already own a home with equity,
- Have stable, strong cash flow, and
- Want to accelerate wealth creation while still paying down their mortgage.
If that sounds like you, then this is an opportunity that is at least worth considering.
The Bottom Line
Your home is more than just a roof over your head. Done right, it can be the foundation for a smarter wealth strategy that helps you:
- Pay off your home faster,
- Build a diversified investment portfolio, and
- Reduce your tax bill along the way.
If you’re ready to explore how your home can work harder for you, book a LINK Equity Workshop today and start turning your biggest asset into your biggest opportunity.