Debt recycling practicalities

Debt recycling is a financial strategy that involves using the equity in your home to invest in income-producing assets. This can potentially turn non-deductible debt (like a home mortgage) into deductible debt (like an investment loan). Here’s how it typically works and answers to your specific questions:

1. Splitting the Loan:
   When you decide to recycle your debt, you essentially take a portion of your home equity and use it to create a new loan – this is often referred to as an investment loan. This loan is separate from your original mortgage and is specifically used for investment purposes.

2. Repayment Method:
   Typically, you would set up a repayment plan for this new loan just like any other loan. This could be a direct debit arrangement where you make regular payments (e.g., monthly) towards the principal and interest. The idea is to service this loan separately from your home mortgage.

3. Increasing the Loan Amount:
   Yes, you can increase the volume of the debt loan amount if additional equity is available in your home and your financial circumstances permit further borrowing. This should be done cautiously, considering the increased risk associated with higher debt levels.

4. Repayment of the Loan:
   The investment loan can be repaid through regular repayments, or potentially from the sale of the invested assets. Some investors might plan to sell the assets once they appreciate in value or use the income generated from the investments (like dividends) to help pay off the loan.

5. Partial Debt Recycling:
   Absolutely, you can choose to recycle just a portion of your loan. This might be a prudent approach if you are new to investing or cautious about taking on too much debt. You can start small and increase your investment as you become more comfortable with the process or as your financial situation improves.

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Typically yes a new split will have its own direct debit and payment monthly.

You can increase it if you apply to increase the size of that loan, or if you apply for a separate one.

I wrote more about it in detail here: https://strongmoneyaustralia.com/debt-recycli...

You can choose to pay it off later, or keep the loan if you wish, just like a normal loan.