Debt Recycling Widget

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(Last updated 30/4/2021)

One of the most popular question property/property-to-be owners in the FIRE community always ask. Should I pay off my mortgage and then buy ETFs, split 50/50 each pay or just pay minimum mortgage and purchase ETF with the rest. The answer. Yes.

Some notes to help you get the most out of the calculator.

Loan Amount - This is the total amount you have borrowed for your mortgage.

Loan Period - The is the frequency in which your mortgage repayment falls due.

Loan Term - This is for the total term of your entire mortgage. Usually 30 years which is why it's the default.

Annual Interest Rates - This is the annual interest rate % on your mortgage that you are paying in interest and/or principal on frequency that you negotiated into your terms. i.e. once a month, once a fortnight.

% Debt Recycled - This is probably the less understood and hopefully less so after reading my guide. This is the amount of money you've redrawn to purchase an income producing asset that you're using to go back into paying down this non-deductible debt from the original loan.

Offset Amount - This is the amount that you've currently saved in your offset accounts (typically against your non-deductible loan until you have fully offset it) that is used in reducing the interest amount you have to pay at the agreed frequency.

Dividend Yield % - This the yield you will be receiving on your ETF/shares. Obvious this can change depending on the business cycle. The long term average is 4% for the ASX300 index which is set as default.

Franking Rate % - This can be a blog post in itself. In short, this is a credit paid to the shareholders by the corporation(s) as way to offset the double taxation that exist without it. It's important to understand this is a percentage of the corporate tax rate and not for all the income tax rate that exists.

Corporate Tax Rate - As per legislation, this is the current tax rate for corporate earnings.The current default is 30%.

Marginal Tax Rate - This is the current tax bracket you fall into. You may have to split the other inputs 50/50 if you have a spouse in a different marginal tax rate.

IP Net Yield % - This is net yield of the Investment Property you are debt recycling into after all expenses.

Interest Only + Recycle - This is the beneift amount per period from using an interest only + debt recycling strategy.

Principal + Interest + Recycle - This is the benefit amount per period from using a Principal + Interest + Debt recycling strategy. For all intent and purpose there are no difference in benefit between these two strategy even though there are different pros and cons (see my guide).

Offset Only - This is the benefit per period from just keeping the money in the offset account without debt recycling.

Invest Only - This is the benefit per period from just investing directly into relevant asset class without debt recycling.

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