Restructuring to a master limit for debt recycling
A couple with children, both government employees, with a strategy from their financial planner. Our job: rebuild the lending so the strategy could work.
The situation
Our clients were a couple with children, both government employees on PAYG income. Their financial planner had recommended a debt recycling strategy, where borrowed funds are invested through the planner over time. Their existing home loan was a single facility, which gave them no clean way to separate investment borrowing from the loan on their home.
The sticking point
Structure. Debt recycling only works in practice if the investment borrowing is clearly separated from the home loan, and if the lending is flexible enough to be adjusted as the strategy progresses. A standard single-split home loan does neither well.
What we did
We refinanced and restructured their lending into a master limit facility with a total limit of $869,000 at 70% LVR. A master limit works like an approved umbrella: underneath it, the lending is divided into separate splits, and those splits can be resized or added to within the overall limit without a new application each time.
Within the structure sits a $309,000 investment split, variable rate and interest only for five years, which will be drawn down to purchase shares through their financial planner.
The result
The home loan and the investment borrowing now sit cleanly apart, the $309,000 is ready to draw down as the planner puts the strategy to work, and the structure can flex as it progresses, all at a comfortable 70% LVR.
Debt recycling carries investment risk. The strategy in this case study came from the clients' financial planner. Finance Craft arranged the loan structure only and does not provide investment, tax or financial advice.
What is debt recycling?
Debt recycling is an investment strategy, usually designed by a financial planner, that involves borrowing against home equity to invest, with the aim of gradually replacing home loan debt with investment borrowing over time. It isn't for everyone: it involves investment risk, it needs the right loan structure underneath it, and whether it makes sense depends on personal circumstances that a planner and accountant assess.
Our role in a debt recycling strategy is the lending side: building a structure that keeps the borrowing separated, flexible and correctly sized, and finding a lender whose products actually support it.
Loan structures, answered
A facility with one approved overall limit that can be divided into multiple loan splits. Splits can be resized, added or repaid within the total limit without a full new application, which makes the structure useful for strategies that change over time. Only some lenders offer true master limit facilities.
It's a team effort. A financial planner designs the strategy and manages the investments, an accountant covers the tax side, and a mortgage broker builds the loan structure that supports it. We work alongside our clients' planners and accountants regularly.
So the borrowing used for investment is clearly identifiable and never mixed with the home loan. Clean separation keeps records simple and keeps the strategy easy to track. Your planner or accountant can explain what the separation means for your specific situation.
Working with a financial planner on a strategy?
Shane builds the loan structures that make planner strategies work, and he'll happily deal with your planner directly.
This case study describes a real loan we arranged, anonymised. Every situation is different and past results are not a guarantee of what a lender will approve for you. The information on this page is general in nature and does not take your objectives, financial situation or needs into account. See our disclaimer for more.