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What is debt recycling, and how does it help me buy an investment property?
Bayley Clarke · Mortgage broker on the road · Last checked 11 November 2026 · 3 min read
The short answer
Debt recycling is what it says in the name: you're recycling debt. Instead of putting your cash down as the deposit on an investment property, you use it to pay down the loan on the home you live in, then redraw that same money back out and use it as the deposit.
You owe the same amount either way. What changes is the purpose of the debt. Whether interest can be claimed generally follows what the borrowed money was used for, so the part you redrew to buy the investment can be looked at as deductible. I'm not an accountant or a financial planner, so this isn't advice, it's how the mechanics work.
The two minute version, filmed from the driver's seat. The rest of this page is the detail underneath it.
How it works, with easy numbers
Say you've got a $500k loan on the home you live in and $100k cash sitting in your offset, and you want to buy an investment property. The obvious move is to put the $100k down as the deposit. With debt recycling you pay that $100k off the home loan instead, so the balance drops to $400k with $100k available to redraw.
Then you pull that $100k back out, split it off into its own loan, and use it as the deposit on the investment. Now you've got two loans: $400k of non-deductible home loan debt, and $100k that was used for an investment purchase, which you can look to deduct. Same $500k owed, but a fifth of it now works differently at tax time.
Why the redrawn money gets its own split
The reason it works is that paying down your owner-occupied loan and redrawing it changes the purpose of that money. What the money gets used for is what generally decides how the interest is treated, not which property the loan happens to be secured against.
That's why the redrawn amount goes into its own loan rather than staying mixed in with your home loan. If investment money and everyday spending sit in the one account, it gets messy to show which dollars did what, and that paper trail is exactly what your accountant cares about. Keep the investment split clean, use it only for the investment, and the records mostly take care of themselves.
It isn't only a property thing either. You can generally do the same with shares, or anything else that earns an income on the investment side of things.
Who it suits
It's such a common strategy for people who have cash and want to build an investment portfolio because the cash does two jobs. It knocks down the debt you can't claim, and it still ends up funding the investment.
From the lending side, it needs a home loan with redraw and a bank happy to split that loan into separate portions. That's the structure I line up when we're setting the loans up, so it's there before you need it, rather than something you try to bolt on after you've signed a contract.
The honest bit: get the tax side signed off first
I spent a couple of years working in the trenches alongside accountants and financial planners, so I understand how this works, but I'm neither. Whether the interest is deductible in your situation, and how you need to keep the records, is a conversation for your accountant before you move a dollar.
And debt recycling doesn't make the debt smaller. You still owe the same amount, and the investment still has to stack up on its own numbers. It changes how the debt is treated, not whether you can afford it.
Want the loans set up for this before you buy?
A 30 minute call. We go through your home loan, what's in your offset and what you want to buy, and how the loans need to be split for it to work.
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Next question
Can rent from my investment property go into the offset against my home loan?Yes. Paying rent into the offset on your own home loan cuts interest on the debt you can't claim.
Related answers
The full guide: Investment property loans The full guide: Keeping your home as a rental The full guide: Using the equity in your home The full guide: Interest only vs principal and interest Can I use redraw on my investment loan? What is a split loan, and how do people use it? How much of my equity can I actually use to fund the next property? Offset account or redraw: which one should I use?Not your question? Book a call and ask it, or call 0437 189 939.