Debt recycling can be a way to pay off your home loan more quickly while accumulating a portfolio of income-generating assets, but if you are considering this strategy, there are some key risks to keep in mind and things to be aware of. Debt recycling can be a strategy for wealth creation. Source: Prostock-studio/Shutterstock.com. What does debt recycling mean?
Debt recycling is a strategy that can be used by homeowners to pay off their home loans as quickly as possible, while building up long-term wealth in a way that is advantageous for tax. It involves replacing or ‘recycling’ the non-tax deductible debt on a home loan with tax deductible debt from investments. How does debt recycling work?
The process of debt recycling involves taking the equity that you have in your property (the difference between the value of your home and how much you still owe on your mortgage), and investing it in income-producing assets that have the potential for growth. These income-producing assets could be any number of things, but examples of income-producing assets include shares , exchange traded funds (ETFs) and investment properties .
Once you have purchased these assets using your home equity, the earnings you make from them can be used to make repayments on your home loan, potentially allowing you to pay it off more quickly than you otherwise would have been able to. According to AMP, the interest on investment home loans is also tax deductible, and using this strategy could potentially create a tax saving, allowing you to put more money towards paying off your home. What are the potential advantages of debt recycling?
There are a number of ways in which a debt recycling strategy could be financially beneficial, including by potentially helping you repay your home loan more quickly, diversify your […]
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