|
Debt Recycling
Many people wait until their home loan is repaid before starting to invest. Unfortunately, this means they invest later in life, limiting the growth potential of their investments.
There is, however, a strategy that lets you invest now and continue to pay-off your home loan reasonably quickly. It’s called ‘debt recycling’ and involves three key steps:
- Use your home equity as security for a separate investment loan.
- Use the investment income and any tax savings you receive from your investments (as well as your surplus cash flow) to help reduce your outstanding home loan balance.
- At the end of each year, re-borrow from your investment loan the amount you have paid off your home loan to purchase additional investments.
Benefits of using debt recycling
- Replace inefficient (non tax-deductible) debt with efficient (tax-deductible) debt.
- Establish an investment portfolio sooner.
- Reach your lifestyle goals faster.
|
|
Tips and Traps
We can:
- Debt recycling may mean it takes a little longer to pay off your home loan, but you still have the potential to create extra wealth (see Case Study over).
- Consider an interest-only investment loan so you can direct more cashflow into paying off your home loan.
- Consider a higher pre-approved investment loan limit to avoid any additional paperwork and fees when adjusting your loan balances each year.
|
