Debt Recycling Compared

Compare Paying Down the Mortgage, Standard Investing, and Debt Recycling.

⚙️

Adjust Assumptions

Assumptions

Initial Home Loan Balance ($)

Initial Lump Sum ($)

Home Rate (%)

Invest Rate (%)

Home Repayment

Invest Repayment

Term (Yrs)

Years to Project

Marginal Tax Rate (%)

Extra Free Cash Flow ($/yr)

Investment Yield (%)

Investment Capital Growth (%)

Monthly Budget (Out-of-Pocket): $0

Based on the initial home loan repayment (0/mo) plus the monthly free cash flow (0/mo).

Winning Strategy: Debt Recycling

Note: Standard Investing and Debt Recycling carry higher risk than Paying Down Mortgage, as they require investing spare cash in the market instead of saving a guaranteed interest rate via mortgage redraw/offset. This is why debt recycling is compared to standard investing over the projection.

Extra net wealth generated compared to Standard Investing, purely via tax efficiency.

Net Difference

Debt Conversion Mechanics

Watch your bad debt convert into tax-deductible good debt.

Net Wealth Comparison

Pay Down Mortgage Directs all spare cash flow and lump sums towards paying off the home loan first. Once the mortgage is fully repaid, subsequent cash is directed to the investment portfolio.

Final Net Wealth

Initial Repayment:$0/mo

Standard Investing Invests all spare cash flow and lump sums directly into the portfolio (e.g. shares/property) from day one, while keeping the home loan repayments at the standard required level.

Final Net Wealth

Initial Repayment:$0/mo

Debt Recycling Uses spare cash flow to pay down the non-deductible home loan, then immediately redraws that amount as a new tax-deductible investment loan to buy portfolio assets. Converts debt to tax-deductible without increasing total debt.

Final Net Wealth

Initial Repayment: $0/mo Home Loan Split: $0/mo
Invest Loan Split: $0/mo

Year	Pay Down Mortgage			Standard Investing			Debt Recycling
Year	Total Debt	Portfolio	Net Wealth	Total Debt	Portfolio	Net Wealth	Bad Debt	Good Debt	Portfolio	Net Wealth

Important Disclaimer & Regulatory Information (Australia)

General Information Only: This calculator is a mathematical modeling tool designed for illustrative and educational purposes only. The results generated by this tool are estimates based on user inputs and generic strategy assumptions, and should not be taken as a guarantee of future performance, wealth, or tax outcomes.

Not Personal Financial Product Advice: The information and outputs provided by this calculator do not constitute personal financial, tax, legal, or investment advice. This tool does not take into account your personal financial objectives, situation, or needs.

Seek Professional Advice: Debt recycling and geared investment strategies involve significant financial risks, including leverage risk, interest rate fluctuations, and market volatility. You should obtain independent professional advice from a licensed financial adviser and/or registered tax agent before making any decisions or acting on the basis of information generated by this tool.

Key Limitations & Assumptions:

Inflation: All projected figures, balances, and calculations are shown in nominal dollars and are not adjusted for inflation. In reality, purchasing power will decrease over time.
Taxation: Tax calculations are based on the marginal tax rate entered by the user. You are responsible for ensuring this rate is appropriate for your personal circumstances (including incorporating any Medicare Levy or Medicare Levy Surcharge if applicable). The model does not account for Capital Gains Tax (CGT) upon future asset sales or other complex personal tax situations.
Rates and Returns: Interest rates, investment yields, and capital growth rates are assumed to remain completely constant over the entire projection period. In reality, these rates fluctuate continually.

Strict Universal Cashflow Model

In financial modeling, comparing strategies is only valid if you commit the exact same amount of cash (out-of-pocket) in each scenario. If one strategy makes you spend more cash than another, the comparison is no longer fair.

To ensure a fair comparison, the calculator establishes a fixed monthly budget that you spend out-of-pocket. This budget is defined as:

Monthly Out-of-Pocket Budget = Initial Required Repayment + Monthly Free Cash Flow

Here is how that exact same budget is spent differently across each strategy:

Pay Down Mortgage: You pay the required mortgage payment, and all extra cash goes straight into paying off the mortgage principal. Once the mortgage is fully paid off, the entire monthly budget is redirected to buying shares/investments.
Standard Investing: You pay the required mortgage payment, and all extra cash is invested directly into your portfolio.
Debt Recycling: You pay the required split mortgage repayments (home loan + investment loan). Any remaining budget is used to pay down the non-deductible home loan split, which is then immediately redrawn as deductible debt to buy shares.

Why this matters:

Every month, under all three strategies, your bank account experiences the exact same total cash outflow. Because your out-of-pocket spending is identical, the final difference in Net Wealth is purely a result of the strategy's tax efficiency and interest savings, rather than because one strategy forced you to save or invest more money.