How can I debt recycle without loan splitting?

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MythicZachHead

New Member
And can you debt recycle without splitting home loan? My mortgage is with Up Bank, great for offsets and no fees. But they don’t offer loan splitting.

In typical debt recycling, you split your loan into two parts (e.g., 800k split into 600k + 200k). Then you use existing savings to pay down the 200k split, redraw it, and invest it. And the interest on that 200k is then tax deductible because it’s clearly tied to an income-producing investment.

But without loan splitting, the mechanics are to take an 800k loan, use savings to pay down 200k, redraw and invest it. And each month, the deductible interest would be calculated as (invested portion divided by total loan balance) x total interest paid.

And has anyone navigated this? And specifically interested in whether Up Bank or a similar no-split lender is workable, or whether it’s worth refinancing just to get loan splitting.
 
If you're doing it once, then yes, you can do it, and it's pretty simple to calculate and apportion the interest correctly. But it might be worth asking whether that simplicity holds up if you decide to do it again say, another 100k. In that case, the 100k would need to be apportioned the same way the interest is: 75k (75%) would essentially go to and then from the non deductible part, and 25k (25%) to and from the deductible part. So when redrawing, it begins to dilute the amount you can claim. And doing it again after that only further dilutes it, making things messier and messier.
 
Yeah, you can pay it down and then use the redraw for the investment activities. You'll wanna chat to an accountant about it ideally, get a split, because then it's easy peasy to prove the funds were used solely for that split. Otherwise it gets way too muddy with redraw for personal use etc.
 
Yeah, from what I’ve read, you can but it’s not exactly ideal, and it gets pretty messy, honestly.
I’m not an accountant, okay?

Say you’ve got 800k and you recycle 200k that portion’s 25% deductible.
Then you recycle another 200k, but since 25% of that gets allocated to business debt, you’re really only recycling 150k. So you end up with just 43% deductible even though you actually recycled 50%. And sweetheart, it gets worse with every split.
Next time around, you’ve recycled 75% but only get to claim 58% of the mortgage.
 
I’ll be raw with you this is something I’ve wrestled with in my own life. It’s definitely possible, exactly as you described, but I’ve realized the further offset savings also offset the deductible portion, as d o all P&I repayments. Personally, I’d consider it short term, but I’d refinance to get it split as soon as I could afterward. Obviously, get your accountant to sign off on the plan. I’m not saying that just as a broker it’s genuinely what I’d do myself in your situation.
 
If your mortgage is for your PPOR, I would permanently absorb the $200k into the loan. Then use the newfound $200k equity in the PPOR as security to borrow 100% of the investment costs. This lowers bad debt (owner occupier debt) and takes on good debt (tax deductible debt). There are minor negatives to tying investments to your PPOR, but the structure is quite good for tax purposes.
 
Yes, it’s possible. No, I wouldn’t recommend it.

If your accountant is truly willing to do all that work and number crunching, then maybe you can make it happen.

But honestly, the extra accounting fees could end up eating away any benefit you’d get from staying with your current lender.
 
For those interested, I investigated other options for staying with the same bank. And there is a scenario called a second mortgage where another lender (typically not a big bank) will take a second charge on the property, provided the first bank who provides the mortgage gives consent. But I spoke to my bank, and unfortunately they don't provide consent in this circumstance. Yet it may be an option to others.
 
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