The concept of debt recycling appears regularly as an investment strategy so let’s take a look at what this actually means.
Debt recycling is considered a high-risk strategy because it involves gearing, i.e., using borrowed money to invest, and you are using your own home to secure that debt. If interest rates increase or your investment doesn’t perform as expected, this could create significant financial stress.
In addition, during times of market downturn, debt recycling can lead to compounding losses – and the interest rates for investment loan facilities can be higher than standard variable mortgage rates.
You will also need to consider your life insurance cover to ensure the increased debt levels are provisioned for if your income stops because of death or illness.
Is it for me?
Debt recycling won’t be suitable for everyone, so it is best to speak with your financial adviser to discuss whether this strategy might be appropriate in helping you reach your goals.
Your financial adviser will work with you to understand your circumstances, your appetite for risk (your risk profile) and your investment time frames to help you determine if this an appropriate strategy for you. There are many strategies available to achieve your financial goals so it’s important to be aware of your options and understand what will be most suitable for you.
If you would like more information on debt-recycling or have any questions, please contact your financial adviser.