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Should You Borrow to Invest in Shares?

August 17, 2021

Should you borrow to invest in shares?

Updated: November 2023.  Original post: August 2021.  


A common question among long term investors is whether they should borrow to invest in shares and increase their portfolio even faster.

After all, more investments means more gains, right?

Well yes, but it’s not quite that simple.  In this article, we’ll discuss:

  • The benefits and drawbacks of borrowing to buy shares.
  • Running the numbers to see if it’s worth it.
  • Margin loans, home equity loans, and other options.
  • How interest rates affect this approach.
  • The psychology behind using leverage to buy shares.
  • How debt affects your ability to retire early.
  • Tips for reducing risk and deciding if it’s for you.


The benefits of borrowing to buy shares

Here’s why you might be interested in taking on some debt to increase your share portfolio.

  • Grow the size of your portfolio at a faster rate or ‘bring forward’ your future purchases.
  • Potential tax savings via negative gearing if the income from your shares is less than interest costs.  You need growth to make up for this or you’re going backwards!
  • Earn higher returns on your savings due to the magnifying effect of leverage.
  • If your want to diversify your portfolio, accessing extra cash lets you do this quicker without selling any shares.


What are the drawbacks of borrowing to invest in shares?

  • You may invest during a poor stretch of returns.  It’s entirely possible that even a 10 year period results in very little or no return after interest costs.
  • Using debt can magnify your losses, quickly eroding your ‘equity’.
  • Income from your shares may fall.  Positive cashflow can turn negative.
  • Increases your liabilities.  Loan repayments are an obligation no matter how your investment performs.
  • Success may depend on interest rates.  Rate rises increase the return you need to breakeven and make a profit.
  • Makes investing more stressful than it needs to be.


Calculating the tax benefits of using debt to buy shares

Here’s where many people get it wrong.

They say “my interest rate is 4%, and my tax rate is 37%, so my investment loan is really costing me 2.5% because it’s tax deductible.”

This would be correct if you earned zero income from your investments.  But in that case your interest won’t be deductible because you can only claim interest expenses if the debt has been used to produce income.

Here’s the ATO’s statement regarding ‘dividend and share income expenses’:

“You can claim a deduction for interest charged on money borrowed to buy shares and other related investments that you derive assessable interest or dividend income from.”

“Only interest expenses incurred for an income-producing purpose are deductible.”


Taxes in practice and negative gearing

You borrow to invest.  Your investment pays some income, while ideally growing in value.  At tax time, you declare your investment income as ‘income’ and the loan interest as a ‘deduction’.

If the income earned is more than the interest paid, you’ll actually pay more tax.  If there’s a cashflow loss, that’s when you may end up with a tax refund.  Just like a property investment.

Say your interest rate is 4%, and you’re earning 4% in dividends from your investment, your tax return is…. zero.  Because your investment income = interest costs.

What about negative gearing?  If you borrow at 6%, and earn 4% in dividends, you now have a cashflow loss of 2% per year.   You can declare this loss at tax time which reduces your taxable income and results in a tax refund.

Obviously, just like with property, this only makes sense if your investment grows in value over time, and the income grows to overtake the interest payments.  Which, for most sensible investments is a reasonable long term bet to make.  But in the short run you’ll be out of pocket, so it’s something to keep in mind.

Back to our original example for simplicity’s sake.  We’ll assume your cost of debt is 4% and you also earn 4% in dividends and 4% capital growth.  Let’s now see how the maths stack up over a 15 year period.

By the way, I created a spreadsheet to keep a running estimate of my dividend income to help plan my finances.  If you’d like a copy for yourself, simply enter your email below and I’ll send it to you.


Is borrowing to invest worth it?  Let’s run some numbers.

This strategy only makes sense if your total return after tax will be higher than your interest costs.  And that ‘profit margin’ should be decent, because why take a large risk for a small gain?

Say you borrow $100,000 to invest into shares.  Using some simple numbers, let’s assume your interest rate is 4% and your long term return will be 8% per year, made up of 4% income and 4% growth.

In this case, you generate a yearly profit margin of 4% on the borrowed money.  Yes, returns might be higher, but interest rates might be higher too.  Feel free to use different numbers.

Since income equals the interest paid, there’s no tax owing, nor do you get a tax refund.  And of course, growth on your shares is untaxed until sold.

So it’s a simple equation:  $100,000 invested for 15 years at a return of 4%.  A simple compound interest calculator tells us our end balance is roughly $180,000.

For every $100,000 of debt, you’ll make an extra $80,000 over 15 years.  Definitely not  bad, but not mind-blowing either.

With a longer timeframe and more debt, the more those additional gains multiply.  Now let’s look some of the options available for borrowing to invest.


Using home equity to buy shares

With this method you use some of the equity in your home to invest in shares.

Say your home is worth $500k and your mortgage is $300k.  You could apply for an additional loan of say $100k to invest with, provided you meet the bank’s lending critera etc.

Of course, you might want to consider using a debt recycling strategy too.

Make sure this new loan is separate from your current home loan so that you can easily record the interest each year for tax purposes.  You can do this either with your bank or by getting a mortgage broker to help you set it up correctly.

You then send this cash to your low cost brokerage account, and buy your chosen shares.  Using home equity to buy shares (compared to other options) has a few benefits.

You have much more control, with basically zero chance of a margin call.  The interest rates are much cheaper.  And you don’t need an existing share portfolio to get started.

Keep in mind you’ll need enough spare cashflow to pay the mortgage each month as dividends are usually paid every 3-6 months.  And ideally, this new loan will be an interest-only loan.

This helps keep your repayments low so you can direct more cash to additional investments or paying down your remaining non-deductible home loan.

If you’re a beginner,  I strongly recommend you start slowly, rather than dumping a large chunk of money into the market at once.


Using a margin loan to buy shares

Another common way of borrowing to invest is using a margin loan.

The good thing about a margin loan is your home and investments remain completely separate.  You borrow against the value of your shares rather than your home.

The downside is, rates are higher than a typical home loan rate.  Sometimes a lot more, but commonly 2% higher.  The lender also has more control and the loan-to-value ratios are more strict.

Update: in November 2023, rates are now horribly expensive for margin loans, so I wouldn’t even bother with this option!

If the market falls, you might be ‘margin called’, meaning you’ll be asked to tip in more cash to reduce the size of your loan, or the lender will sell some of your shares to reduce the debt.

With a home loan, as long as you keep up repayments, the bank isn’t going to care whether your shares are up or down – in fact, they won’t even know.  If going the margin loan route, keep your LVR low (say 30%) to avoid this risk.

Some examples of margin lenders in Australia are Leveraged by Bendigo & Adelaide Bank, Interactive Brokers, and Bell Direct.  Big banks also offer margin loans, with sometimes negotiable rates.  So if you’re going down this path, be sure to shop around and see who really wants your business.


Using NAB Equity Builder

This one has become a popular choice in the last few years.  NAB created a special margin loan called NAB Equity Builder, which works kind of like a home loan, but for shares.

You  borrow some money, contribute some of your own, and agree to make principal & interest repayments each month like a mortgage.  By committing to these repayments, NAB say there will be no margin calls.

Loans start at $10,000 and you simply need a cash deposit to get started or a share portfolio to borrow against.

The interest rate is often lower than other margin options, but typically still not as attractive as home loan rates.

As far as I know, NAB are the only one offering a loan structure like this.  That means they have a fair bit of power to change the rules, jack rates up, and so on, knowing you can’t get the same thing elsewhere.  That may seem pretty unlikely, but it’s still something to consider.


What about using a personal loan to invest in shares?

No.  Just… no.

The rates on these types of loans are still mostly in the ridiculous range of 7-10% or more!

You will be doing well to simply break-even with an interest rate that high.

If you can’t access any reasonable cost options, then just keep it simple and work on earning more and upping your savings rate.


Investing in Geared ETFs

A newer option is to invest in ETFs which are themselves geared.

Some examples of this include GEAR, G200, and GHHF – all managed by Betashares.

Geared ETFs are able to borrow funds at ‘institutional’ rates, which are cheaper than the average person can access.  They use this to increase portfolio size, with the idea being to provide higher returns.

These sound great in theory, but there are downsides.  The largest issue is volatility.

I wrote about leveraged ETFs here on the Pearler blog.  In that post, I explore the performance over time, and how the geared ETF fell 67% during the covid crash, while the market itself was down about 36%.

Almost nobody has the stomach for that.  And it remains to be seen how the fund would perform in a worse crash of say 50%.  My guess is a geared ETF would fall in value by around 80% or more.

I encourage you to go read the post, because I go into quite a bit of detail the challenges that geared ETFs face.

They can suit some investors and situations, but unfortunately, they work a lot better in theory than in practice.


Interest rate considerations

Interest rates won’t be this low forever.  If rates rise 1%, 2% or more, how does that change your strategy?

Without debt, you’ll barely blink.  By investing with borrowed money, you’ll be acutely aware and feeling less comfortable with each rate increase.

You’ll quickly resent having to make loan repayments if you’re not making gains, or worse, sitting through nasty losses.  Leverage can quickly turn a simple investment plan into a miserable experience.

When your investments fall in value, your debt remains the same.  So your equity is shrinking before your eyes.  Most people have enough trouble coping with market downturns as it is.  Adding debt makes it even harder.

Using leverage to juice your returns looks fantastic on a spreadsheet.  But in the real world where things don’t go up in a straight line, it’s not so easy.


High yield or low yield?

When taking on extra debt to invest, you need to meet the repayments.  For this reason, some people go for shares where the income they receive will be higher than the loan interest.

This is much easier psychologically, and practically, because you’re not having to dip into your own income to cover the shortfall, and you’re even getting some positive cashflow.

On the other hand, lower yield higher growth investments are more tax effective since you can potentially claim the cashflow-loss as a tax deduction.   Plus lower yield options (like global shares for example) tend to give you greater diversification.

There are pros and cons to both options.  You can always choose a nice middle ground, where you aren’t warping your investment plan to either chase high yields or optimise for tax.

It’s best if you can invest using debt the same way you would if no debt was involved.


Other tips and points to consider

  • Invest in assets you can hold forever.  This goes for whether you’re borrowing to invest or not.  Ideally, this is low cost diversified funds which you know will still be around in 20, 30, 50 years.
  • Keep more cash than you normally would.  In case of interest rate increases, market downturns, job loss, etc.
  • Your situation is less certain when debt is involved.  You need to be more prudent in managing your cashflow and choosing sensible investments.
  • With margin loans, keep the loan-to-value to a low level.  Probably no more than 30%.  This would mean for a $100 investment, you use $30 of debt and $70 of your own money.  If your investment falls 40% to $60, your LVR is still only 50%, and you won’t risk a margin call.  More than this and it could get ugly.


How debt can affect your ability to retire early

Using debt to magnify your returns can work well if you’re still working.  But when you’re looking to step off the hamster wheel and cruise into a state of independence, debt can be tricky.

Say you’ve got an investment loan charging you 4%.  If your investment portfolio is producing 3% income each year, it’s actually eating into your available cashflow to live on.

Now sure, your portfolio is hopefully growing in value, but keeping that debt around arguably puts you in a less certain, less enjoyable position.

You’re also more affected by interest rate rises eating into the returns you can use to live off.  Having negative cashflow investments in retirement is not as fun as having dividends hit the bank and knowing it’s all yours! 😉


Summary and final thoughts

On balance, borrowing to increase your investments usually doesn’t fit well if you’re wanting to reach financial independence in around 10 years or less.

As I’ve said before, with a good savings rate you don’t need leverage to build wealth or retire early.

Borrowing to invest can definitely be useful in long term wealth-building.  And I remember the feeling of wanting to juice progress as much as possible, so I would definitely consider using leverage to increase our share portfolio.

But I also see the appeal in running your finances in a more relaxed way with no debt whatsoever.  Borrowing to invest is taking on more risk, which may or may not pay off depending on your investments and your timeframe.

Whether it fits with how you want to invest… that’s for you to decide.

Would you consider using debt to invest in shares?  Let me know in the comments.  And if you already have, tell me how the experience has been 🙂


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63 Replies to “Should You Borrow to Invest in Shares?”

    1. Cheers Pat. Yeah that’s fine, people interested in the product may head over there to chat with ppl who’ve used it 🙂

    2. Are there any non- FB groups where I can glean some insight on NAB EB Pat? I’m not on FB but like using my facility and wanted to find other fans. The other places I see the topic pop up is on r/fiaustralia or r/ausfinance.

      What I’d like is for NAB to increase maturity on loans from 15yrs to 20+yrs similar to a home loan and provide better cash flow solution and more importantly match a long term investor’s horizon.

  1. It’s funny most people have no problems borrowing hundreds of thousands of dollars to invest in property but shy away from leveraging into shares. If you have a long time horizon and are investing into a low cost diversified portfolio, and do not panic sell when market has a downturn, I don’t see any problems in borrowing to buy shares.

    1. Haha yes it’s quite an interesting tendancy. It’s purely the volatility that scares people and being able to sit through stomach-churning losses on the rare occasion. Still possible but less likely to occur with property.

  2. Thanks for the article Dave.

    Just wanted to get your opinion on my situation.

    So I have fully paid mortgage – in an offset account – do I just not touch this or should I invest this in VDHG or something like that? Bit confused.

    1. definately get some advice from an accountant – on offset is treated totally different to a loan redraw with regards ability to claim the interest as with an offset you arent actually borrowing the money.

  3. RE margin rates, IB have super low rates but aren’t suitable for non ‘sophisticated’ investors, their offerings for normal people cap out at 25K. Bell direct margin rates are better then leveraged and
    NAB EB if you borrow more then 500K, IE 3% if you are borrowing 2M or more.

    I don’t personally use margin loans as the risk is too high, but there are better rates then what you have outlined in the article.

    We have borrowed against our house and use NAB EB, this has put us in a position to retire much sooner then if we didn’t use leverage, so I’m not sure how you came to the conclusion that if it’s under 10 years it isn’t ‘worth’ it. Didn’t you leverage into 53 houses to achieve your FIRE?

    1. I said there’s no need to, not that it’s not worth it. Whether it’s worth it is an individual choice. Also, there’s a risk you don’t achieve high enough returns to beat your interest cost. So yes it can work, but it’s not guaranteed to work with a shorter timeframe.

      Lower margin rates than 4%? I haven’t really noticed these apart from IB. There’s obviously tons of options for high net worth/large portfolio individuals, and I’m sure they’re quite aware of what they are, but that probably doesn’t apply to 99.9% of my readers. Edit: I’ve added a link to Bell Direct options in the article, thanks for pointing it out.

      Yeah we bought 300 houses in 2 years, it’s easy money. No, the bulk of our FI was built through a high savings rate. I expanded a bit on our results with property here. We put those savings into property before I later learned about shares and started moving in that direction. Our property returns have actually been pretty lacklustre, even including the leverage.

  4. A good read Dave! Thanks.

    That interest rate risk – the risk of interest rates increasing through the loan term, and that impacting the investment assessment is a really key issue.

    As an example, the Federal Government in its Intergenerational Report tests scenarios of public finances if interest rates go up around 4% from here. I think potential leveraged investors would be wise to do the same, at minimum, to understand what could happen to repayments!

  5. Hi,
    I use the NAB Equity Builder and have only just really got it going. I found the setup relatively easy and the NAB help really good. I keep my exact same investing style, but i have the value straight away.
    So i used to invest exactly 2k per month. With the NAB EB, I took 72k over ten years. The benefit is exactly 2k still leaves my account every month. This is in 3 transactions.
    1. Principal repayment
    2. interest repayment
    3. Additional bank transfer to make total 2k.
    Therefore, the loan will be paid off close to the 3year mark and my cashflow is identical. (all investments are on DRP).
    So far very happy with the product.

    1. Hi Chuck, is it possible to dollar cost average in using the NAB equity builder or do you have to use all the borrowed funds in one transaction? TIA

    2. Hey Chuck,

      Do you mind if I chat with you through email about your experience with NAB EB? I’m currently looking to set one up for myself and would love someone who had already done it to bounce ideas off.


  6. Great timing if this article. I am so debt adverse it’s not funny, however had been thinking of a margin loan. But we do want to retire within 10 yrs and this article has made me think that it’s ok not to take on that risk and just keep saving n investing, saving n investing.

    1. Oh definitely. I think people forget that the bulk of wealth built in 10-15 years comes from saving rather than investment returns. So trying to juice the returns might help, but the saving is the magic, so debt averse people like yourself can happily make great progress without using leverage.

  7. Hi Dave. Great article mate.

    I’ve been using NAB EB & have found the experience to be pretty good. I started borrowing from NAB with a small loan of $150k in 2019. Once the Covid crash hit I was comfortable with taking on more risk & jumped straight in increasing my loan with NAB EB to $580k with another $70k of dry powder ready to go. I stuck to my regular DCA per month but just increased the purchases to somewhere between $45-70k purchases. It has helped take my share portfolio from $0 in 2017 to $1.18m. I do expect rates to go up over time but not significantly for a while & by that time I’ll have the debt paid off as my good savings rate as well as dividends from the portfolio & the tax incentives will help me pay the loan off in full in a little over 4 years. I have also used a personal loan to buy shares. The interest rate has less bearing the quicker you pay it off so can be a good option if taking advantage of a good opportunity but will obviously come at the cost of higher interest in the short term. Having a solid plan & being comfortable with market volatility is a must. For some context we have a high savings rate on high income & no mortgage. We don’t mind paying a little more in tax now knowing we will be paying $0 in tax when we do choose to retire in a few years when the debt is gone & for a very long time in the future. Also worth noting is we haven’t found having the debt to be burdensome or complicated in anyway. Definitely depends on the person, their plan, their conviction in what they’re doing, ability to meet loan requirements etc. I just think of it purely as a mortgage except when this mortgage is paid off it will find our lifestyle for the rest of our lives. Also when we do pay it off we’ll keep the loan facility open because I’ll be taking advantage of future downturns in the same way.

    1. Thanks Ben, and appreciate you sharing your experience. Sounds like it’s been great for your situation and you really made the most of it during the 2020 crash, nice work!

  8. I used the JBWere Equity Builder, the grand daddy of the NAB EB, to build an investment base when I was younger. Leveraged into several managed funds (in the days before ETFs).

    Now I’m a retired I use the Betashares GEAR leveraged ETF. No margin calls, and they borrow internally at a wholesale rate I couldn’t match with a retail loan. And it gives me enhanced dividends to meet living expenses. So far very happy.

    1. That’s interesting John, good to hear you’re happy with it! I’ve looked at GEAR before but I think you’ve gotta have an iron stomach for that one… dropped more than 60% during covid vs the market drop of 35%. I don’t think many folks are cut out for that (probably me included) 😉

      1. Insane dividends though if you have the stomach +10% annually. Even during the downturn downturn in 2020 returns were 3.5%.

  9. Great post as always Dave.

    I’d be curious to know what you think of Interactive Brokers (‘IBKR’) margin facility. I have heard they have very low interest rates (possibly as low as 1.5%?) but possibly the amount you can borrow is capped at something like 25k.

    Mr Money Moustache wrote a post about IBKR’s margin loans here which was what piqued my interest:

    I’m thinking about getting my feet wet this year with either NAB Equity Builder or IBKR option, what do you think?

    1. It looks good, but that’s for US investors though. Over here, the rates look like 2.5% (it says an extra 1% for Aus borrowings I believe) and they only lend up to $25k for retail clients – which is us, unless you’re a high net worth individual or something like that. So if you’re keen on this approach, it looks like NAB Equity Builder or another low cost margin loan might be more suitable here in Oz (like Bell Potter or Leveraged). But have a think about whether you’re comfortable with the risks if things don’t go as well as planned.

  10. FYI Doesn’t look like Nab Equity Builder are allowing new applications ..

    “New applications for NAB Equity Builder are currently not being accepted
    If you’d like to apply, please complete the Expression of Interest form and we’ll notify you as soon as NAB Equity Builder online applications are open. Timeframes can’t be provided at this stage but our teams are working hard to allow new applications as soon as possible. Thank you for your patience and understanding.”

    1. Cheers for pointing that out Chris. I have heard that before but wasn’t sure if it still applied. I’m sure it’ll open up again at some point.

  11. Hi Dave,
    Interesting article which resonated with my recent past. I had a low interest loan set up for doing just this after we paid off our mortgage. My reasoning was that if the market ever really crashed I would use it to make a large investment and treat it almost like purchasing an investment property. Truth be told though, I’ve had this setup for 6 years and still not touched it. During the Covid crash I found myself wondering more about job security and using the loan felt like creating extra stress and starting a new mortgage when I had the choice not to.
    I ended up putting extra cash in to the market in the dip using the GEAR ETF which i found to be a good compromise. Take the punt on leveraged growth during a market crash, but not take on debt to do so. I wouldn’t buy any more units in it with markets at all time highs, but plan on holding it for 20 years plus now and buying unleveraged ETFs every month now when prices are ‘normal/high’. I use the dividends from GEAR to buy normal ETFs so it slowly becomes a smaller part of my portfolio.

    1. Thanks for sharing this Jezza, very interesting approach.

      Crashes sound like great buying opportunities until it’s actually happening and it feels like the world is genuinely turning to shit. That’s why investing is such a behavioural game at the end of the day.

      1. Yeah it’s tricky.

        I continued regular purchases during the pandemic crash, really had no idea what was going to happen but at least I could control this one aspect.

        In hindsight I should of threw everything I had in at once but it’s so hard to do that when it’s happening. I know for sure I wouldn’t of been able to do that with an Equity Builder loan when it’s precisely that moment you need to be able to stomach the risk.

  12. Thanks Dave – great, balanced, and well considered post. Our house is paid off and I have been toying with debt recycling option, but your article gives me permission to trust my gut, which was saying “why take the risk?” At the end of the day, the potential benefits in terms of our wellbeing are not as great as the potential costs in terms of stress, regret etc. keep up the great work – love the website and the podcast!

  13. Thanks for the article Dave.

    I am curious about the difference between investing using home equity, and debt recycling. By my reckoning, once you have paid down debt in order to debt recycle, you are essentially following the home equity approach in your article above.

    Yet, ‘debt recycling’ is usually considered a more beneficial approach than the home equity approach. E.g. on my reading your debt recycling article is more positive to the approach than this article is to using home equity to buy shares.

    Or am I missing something?

    (Hope that makes sense)

    1. Cheers Matt. The main difference is debt recycling is when you’re simply taking money you were going to invest anyway, and re-routing it through your mortgage first, thereby making that part of the loan tax-deductible.

      Using home equity to invest in shares is really speaking about taking on additional debt to increase your portfolio. With debt recycling, you’re not increasing your debt level – simply making your current investment approach more tax efficient and often continuing to slowly pay down your mortgage as normal. Does that make sense?

      1. Thanks Dave – penny dropped.

        Would you view using home equity more favourably if it was from an IP rather than PPOR?

        I am new to investing and fi, though following a lot of the principles without knowing it for years. I have previously built wealth (slowly) filling ppor offset accounts (currently 100%!). The concept of paying off the mortgage and re drawing to invest looks great in the spreadsheet, but feels wrong.
        Wondering if it would be different if it was an IP.

        1. Good stuff!

          Mmm, not really. The tradeoff is pretty similar, just deciding whether it’s worth taking on more debt to juice returns. Most people just prefer to keep investments separate from their home, just in case the worst case scenario eventuated and they couldn’t make repayments and lost their house. It’s more psychological than anything.

          In you case, it really depends if you would rather have a debt free home or not… officially. If yes (sounds like it), then maybe just pay it off and start investing separately. If you don’t care about debt, that’s when you might want to consider the other options.

  14. Hi Dave,

    Over most of my share investing experience, I use a normal Margin Loan (currently with NAB) to avoid PAYG upfront tax instalments payments on my passive dividend income.

    I try to keep my gearing level down to between 20-40% of the share portfolio compared to an Loan to Valuation Ratio (LVR) of 80% so I don’t have to worry about a margin call, without having to pay the higher interest rate charged by NAB Equity Builder product.

    I just fixed my loan at 2.05% pa fixed for 12 months payable in advance each year to refinance my share portfolio that yielded a gross 9.25% pa in 2019-20 based on my historical cost price.

    Hence, I have a positively geared share portfolio that funds my FIRE lifestyle and throws off enough cash, so I can keep maxing out my annual tax deductible deduction to my SMSF.

    When I reach 60 years, I have the option to cash out excess balance above A$1.7M tax free threshold to pay cash to buy outright my “Dream Home” in the location of my chosing.

    As you rightly point out, achieving FIRE is a function of a high savings rate rather than the investment vehicle.

    Instead of parking my savings in a geared investment property, I preferred the greater control and flexibilty of a positively geared share portfolio in combination with a SMSF.

    1. Hey Keith. Sounds like you’ve been pretty prudent with your margin loan and your investing over time, nice work.

      Can I ask, what type of margin loan (and who with) is this which costs 2.05%? It would be great to know more about it for the benefit of other readers.
      I’m guessing this would have to be a substantial loan to get such an attractive rate, as these types of loans usually get cheaper the more you borrow.

  15. Hi Dave, love your article. I have/am using an Equity Builder loan, and like a few of the comments was not able to get one last year.

    For the people who can’t access it, you can still get one, and applications need to be sent direct to the equity builder team. The below address will get you through and allow you to apply. They just don’t want every man and his dog to apply; hence, that’s why the normal website is “blocked”.

  16. Hi Dave, great article and thanks for your personal reply many months ago when I was contemplating this. Thought I’d share my strategy. I had over 50% equity in my owner-occupied home loan. As everyone knows, there are a number of very attractive refinancing options and also a lot more home loan products out there which include multiple offset or redraw accounts, some with no/minimal fees to establish or redraw/ deposit into. I managed to refinance for <2% home loan with x3 separate redraw facilities. 1 is my emergency funds account= 1yrs + living expenses 1 is an investment account and the last is the home loan which I also use for everyday expenses.

    I looked at how much debt (P&I) I could comfortably service on all 3 aspects of the loan – including a possible interest rate rise. I decided that I could safely re-invest 25% of the equity built up & set up the max redraw amount to reflect this.

    I used most of the “investment redraw” to buy LICs and index ETFs which generate some dividends, but also grow so I can tax deduct the interest on this component of the loan

    I still work half time , so all my earnings goes into the various loans depending on the target reserve I want to maintain. Once I save up enough in the investment loan component again, I can re-invest when comfortable. Meanwhile, the money sits there and reduces interest repayment s owing on my home loan.

    This strategy means it will take me longer to repay my hom loan, but I think I’ll still be able to pay it off eventually in the next 10- 15 years which is when I’d like. To fully retire if I want to (( I still like my work).

    By doing the above, I am hoping to accelerate my investments and make the most of compounding, also have access to income when I retire as I still won’t have access to Super for another 10 years. It’s not quite debt recycling, but has similar principles

    Its not a simple strategy, but I think it will help meet my long term goals faster with debt I can afford. If interest rates go up, I can just leave the money set aside for investments there to pay off the loan. Having emergency funds in a standard savings account also earns no interest these days, whereas this way it reduces my HL interest.

    I read a lot- of this blog and others. also got advice from my accountant about how to set up the loan so that the interest on the investment loan can be calculated separately. I spent 6 mo reasearching loans myself to find something suitable.

    Long post, I don’t normally share much, but have found the info provided due to the generosity of people like Dave very useful, so may be this will help others!

    1. Hi Sue, thanks very much for sharing your approach with us. Great to hear you’ve mapped out a strategy that works for your goals and timeline, and I’m sure others will find it interesting 🙂

  17. Hi Dave,

    As always great article, I have a question if you could help me with, I want to borrow additional fund against my home, as its value has increased, to invest but it seems that the bank charges higher rate if it is for investment purposes, do I have to go with `investment` purpose? What is the consequence if I borrow for personal purpose with lower rate and still invest it, will it cause any problem for my tax refund even if the loan increase is fully separate?


    1. Hi Mehr. In my experience, when you borrow ‘against your home’ you will pay the normal owner occupier rate. You can then invest this money and the interest will be deductible because you have used the money for investing purposes. So no issue there at all.

      If the bank asks what the money is for, you can always say ‘renovate my house’ – sometimes they get nervous when people borrow to invest in anything other than property because lots of people don’t know what they’re doing and put it into stupid stuff 😉

      The investment interest rates you see are related to borrowings which are attached to an investment property. Hope that helps!

  18. One more comment :), I really liked this NAB Equity Builder, however the brutal fact about it is that NAB can remove the investment fund from the approved list any time and so the borrower has to sell all the shares and switch. Let’s say I borrowed and invested in VAS and the VAS price drops and so they see it as risky and remove it from the list, now I have to sell my shares with low prices probably with loss which theoretically could be even worse than margin call. Saying all that, I think I am willing to take the risk and borrow quite a big chunk of money, maybe 500K.

    1. That’s a fair thing to point out, but in the case of something like an index fund VAS – it would probably be the last fund they would remove from their approved list. After all, everything else is less diversified (and riskier) than something that represents the whole market. So I wouldn’t even consider that a realistic risk. Before that ever happened, they would likely reduce the allowable loan-to-value limit if anything.

      NAB knows the price of all shares can drop by substantial amounts and they would’ve designed Equity Builder with this in mind.

  19. Hi, I’m 51 ( retired at 43 ) debt free retired have income from shares and 2 paid off investment properties + home. I’m about to borrow 300k and drop it in super knowing I can get it back tax free including it’s earnings at 60 with a 2.4% mortgage on the borrowings the out of pocket is very small compared to the 9-10% average return in super, can you see any downside ? Obliviously the mortgage isn’t tax deductible but as I’ve always said you can’t make it with both hands !

    1. Sounds like you’re in an extremely strong position George, so there doesn’t seem to be any obvious glaring risk that you couldn’t handle here. I suppose the only thing to weigh up at this point is whether it’s worth it or not given your excellent position and having zero debt.

      If rates average 3-4% and super returns a more conservative 7-8%, then you’re essentially making an extra $12k per year for taking on this debt. That’s how I’d think of it. Is that attractive enough to bother with given your already advanced level of wealth? Up to you 🙂

      1. Hi
        Thank you, I guess the way you’ve put it at making a $1000 tax free per month for essentially filling in a mortgage application it would seem wrong not to ! Opportunity with very little risk is surely an investors dream.
        Only just signed up.

        1. Haha not bad. But I guess there is another thing – you’ll be paying tax to get the money into super in the first place? So you could take a decent haircut before you start earning returns (at least 15% I believe). Check what the rules are on putting in such a large amount all at once, which will depend somewhat on your situation.

  20. Hi Dave,

    Keep up your excellent work! I have saved each and every one of your articles in case your blog goes offline!

    What are your thoughts on using home equity (say $100,000 as per your example) to invest in the VAS ETF? I really liked your calculations, especially the bit where you say:

    “Say your interest rate is 3%, and you’re earning 3% in income from your investment, your tax return is…. zero. Because your investment income = interest costs.”

    This calculation does not take franking credits into consideration and VAS is 70-80% franked. You have also said in other articles that franking credits make investing in Australian shares (ETF’s and
    LIC’s) very tax efficient.

    So my question is this.

    Say my interest rate is 4.5%, and I am earning 4.5% in income from VAS. How will this affect my tax return?

    1. Thanks Dan, I’m happy you enjoy the content so much!

      That’s a pretty specific example, so I can’t really make suggestions there. But I have basically done this myself, we now have a decent sized loan against our home and used the money to invest in our portfolio (one of those holdings is VAS).

      In the example you’ve given of a 4.5% yield, the tax outcome is zero return and zero tax payable. But if you haven’t included franking, then the overall income level will be higher. If VAS is franked at 80%, then a 4.5% dividend comes with an extra 1.5% of franking. This 1.5% will count as income for your tax return, but also count as tax paid. Call it $1500 on $100k. The result is, this $1500 franking will be taxed at your marginal rate and the rest will be refunded to you.

      So this may end up with $750-$1000 as a refund in that example. But if the 4.5% is the gross income including franking, then it’s as the original example suggested and means no refund and no bill. Hope that makes sense.

      1. Thanks for your prompt response Dave! It makes sense. I am still trying to get my head around some of the calculations but will message again if required!

  21. Hey Dave,

    As you can probably tell I’ve just discovered your site today. I’ve spent basically all day on it I’m loving the content.

    In relation to the NAB Equity Builder, since the rate is currently at 6.5%, would you say it’s not worth considering given most dividend yields are <5-6%? Interest rates look likely to continue rising and a recession might also be on the cards for 2023 so more market downside is probable. Seems that the only real time to consider this product is during periods of low interest rates but I may be missing something.

    1. Glad you’re enjoying it here!

      Yeah it’s a tricky one. Basically going backwards in cashflow terms, and with a long term total return of say 8% (pretty reasonable), it’s not a very profitable exercise if one is paying over 6% in interest. So it’s probably not something I would consider on those numbers.

      1. Thanks Dave. Can I ask, in your opinion, is a recession likely in 2023 and are you being cautious with investing in the market right now? or are you continuing to invest as normal with no real concerns?

        1. Nobody knows is the true answer. My guess is nothing major, even if a slowdown does eventuate due to rate hikes.

          Continuing to invest as per normal, no change whatsoever 🙂

          1. I don’t pick stocks these days. I’m happy to own basically everything. Funny you say that though, BHP is the biggest company on the ASX, so it’s the biggest company in my portfolio. That means I’m benefitting from the huge dividends (if it stays that way) without even doing anything or taking the extra risk and hassle of owning it individually.

  22. First of all I wanted to say thank so much for your amazing content Dave.

    I have just discovered FIRE myself and have been reading so much of late and listening to al the podcasts from all the amazing content creators. Your website and blog are fantastic!

    While I only just discovered FIRE I have been on the journey of retiring young for over 12 years now.

    I currently have no debt on my PPR valued at around $1.5 million plus I have another 6 investment properties with a net worth of $1.8 so including my house just shy of $4 million net.

    But as I am coming to realise property is useless if you want an income! I plan to slowly and tax effectively load off 4 propeties and invest the net gains after tax into ETF and LICs.

    However I am toying with the idea of using equity in my PPR to invest into LICS over a 10-15 yr time horizon to help reach FAT FIRE sooner, I have two young kids in primary school and once they are out of high school we plan to properly slow down (not retire as I couldnt see myself doing this).

    My main issue is – is it worth using debt to grow our portfolio when interest rates are so high.

    I read a comment above where stated using equity to invest is not very favourable given the increasing interest rates, now that was back in 22 when rates were still increasing…

    I just hate that I have a property worth 1.5million soon to be 2 million once we build the top storey and not producing any income!!

    I would love to hear your thoughts about borrowing at approximately 6.5-7% and whetehr there is any gain to it- I wonder if there is a interest rate that is considered the breaking point that makes borrowing to invest worthless/ too risky….

    Thanks again for your amazing content it brings so much value to ALL!

    I woud love to know what your thoughts are on borrowing to invets in this high interest rate environment.

    We have never cared about interest rates when it comes to property as we are builders and we build, renovate and develop all the property we buy, so we make the numbers work for us.

    1. Hi Jane, great to hear you’re enjoying the content!

      It’s true, with rates higher now, borrowing to invest in shares is much less attractive than before. It will result in worse cashflow rather than better. You’ve already built substantial wealth so I’d be more keen on just focusing on simplifying things rather than adding more debt. Just some simple compounding of what you’ve built already will do wonders over the next ten years without taking more risk.

      Also, don’t worry too much about your PPOR. Remember, a lot of equity, but you also don’t have to pay rent anymore, so there’s a financial benefit to that also. One option is to downsize in price if you really want more cash to invest with, but that’s a personal choice. I’m generally not interested in borrowing to invest at 6%+ rates as the numbers aren’t that appealing. Anyway, that’s my 2c.

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