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That's right, if you don't split it you have a mixed use loan. And a headache :)

For eg - Loan balance $250k, accessable equity $30k, limit $280k. Cash $20k Put cash in loan - Loan balance =$230k- accessible equity $50k. Limit still $280k Create 2 loan splits, one is the original $230k, the other is the $50k equity.

It works well if the loan you're paying into is a PPOR. It basically turns what was PPOR debt into IP debt. There's no real advantage in doing it if the equity is in an IP. Ideally you'd get a valuation done prior to putting the cash in the loan, and then would create a new loan split to...