Debt Recycling Explained: A Practical Guide for Homeowners in 2025

Debt recycling is one of the most powerful long-term wealth strategies available to Australian homeowners in 2025 yet it remains one of the least understood. At Bear Loans, we see this every week. Many clients have the equity, the income, and the motivation to grow wealth, but don’t know how to structure their loans in a way that actually works for them over time.

As mortgage brokers who are also chartered accountants, we specialise in structuring loans with tax outcomes in mind. Most brokers simply place a loan. We look at the whole picture—your tax position, investment goals, serviceability, and long-term financial security. That’s why debt recycling matters.

What Is Debt Recycling?

Debt recycling is a strategy that converts your non-deductible home loan debt into tax-deductible investment debt over time.

It works by:

1. Using available equity in your home

2. Borrowing against that equity

3. Investing those borrowed funds into income-producing assets

4. Using the investment income and tax benefits to pay down your home loan faster

5. Re-borrowing the repaid portion again for further investing

   
   

Done correctly, it accelerates wealth creation while reducing your bad (non-deductible) debt.

Why Debt Recycling Matters in 2025

Interest rates remain higher than the low-rate environment we saw during the pandemic. Every dollar of non-deductible debt hurts more than it used to so smart structuring is essential.

This is where Bear Loans’ dual qualifications make a real difference. We don’t just set up your loan, we consider:

• Tax deductibility

• Cash-flow sustainability

• Risk management

• Investment suitability

• Long-term borrowing strategy

• ATO compliance

• Proper loan splitting to keep your structure clean

How the Strategy Works (Step-by-Step)

Debt Recycling Strategy Breakdown

1. Split your home loan into multiple smaller sub-loans

2. Redraw or borrow from an investment split to purchase shares, ETFs, managed funds, or an investment property deposit

3. Investment income + tax deductions reduce your net interest cost

4. You redirect savings and investment income back into paying down your non-deductible home loan

5. Repeat the process annually or as cash flow allows

Over time, your home loan shrinks, and your investment loan grows without increasing your personal cash burden.

Who Should Consider Debt Recycling?

Debt recycling suits:

• Homeowners with stable income

• People with home equity

• Investors wanting to build wealth but unsure where to start

• Households with high non-deductible debt

• Clients in higher tax brackets

  
  

Debt recycling does not suit people struggling with cash flow or who cannot commit to a long-term plan.

If you’re unsure, we can model the numbers for you clearly and simply.

Common Mistakes (and How We Avoid Them)

• Mixing personal transactions with investment borrowings

• Using redraw incorrectly

• Failing to create separate loan splits

• Not matching the investment purpose with the correct loan

• Over-stretching cash flow

• Not reviewing the plan annually

Bear Loans handles the structuring so clients avoid these issues from day one.

Why Choose Bear Loans for Debt Recycling?

We’re not just mortgage brokers we’re chartered accountants and property tax specialists.

That means:

✔ Correct loan splitting

✔ Correct investment-purpose documentation

✔ Correct tax treatment

✔ Correct long-term strategy

✔ Clear structuring advice

✔ Ongoing accountability and reviews

Most brokers can talk about loans. We talk about financial outcomes.

Ready to Structure Your Wealth Strategy?

If you’re planning to build wealth in 2025 and beyond, debt recycling can be a game-changer if it’s done correctly.

Book a consultation with Gavin at Bear Loans today, and let us structure the strategy properly from the start.

Click here to call Gavin