A revolving credit facility works like a large overdraft secured against property. How investors use it, and the tax trap to avoid.
A revolving credit facility is a home loan that works like a large overdraft secured against property — you can draw down and repay freely up to an approved limit, paying interest only on the balance outstanding.
Flexibility. Income can sit in the facility reducing the balance and the interest charged, then be drawn out when needed. It's commonly used to hold deposits, fund renovations, or cover the gap between buying and selling.
This is where investors get into trouble. If a revolving credit facility mixes private spending with investment borrowing, working out what proportion of the interest is deductible becomes complicated — and IRD specifically scrutinises this.
The clean approach is a dedicated facility used only for investment purposes, with private spending kept entirely separate. Mixing them can jeopardise the deduction on the whole facility.
The flexibility that makes it useful also makes it dangerous. Because there's no required principal repayment schedule, balances can sit at the limit for years. Discipline has to come from you.
Rates are typically higher than fixed-term lending, so parking long-term debt in revolving credit costs more than it needs to.
Last reviewed: 1 August 2026 · General information only, not tax or financial advice.
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