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You have paid capitalised interest by borrowing it. It is like capitalising LMI into a loan - you have borrowed to pay it and can still claim it as a borrowing expense. Any 'scheme' to capitalise interest to pay off the home loan sooner is potentially problematic with the ATO.

Only to congratulate you?

Ni Hao Renminbi Interestingly capitalised interest is deductible if the original loan interest is deductible. But with property the ATO has put out a TR saying they may deny this deduction if it was done as a scheme to pay off the home loan sooner. As far as I know there is no TR or other...

This may be the case initially. But values will hopefully increase. e.g. start off with $100,000 value. $80,000 PPOR loan. Later value $120,000 so you could set up a LOC of $16,000.

Yes, would need a bit of equity to start off. And then it becomes a choice - use offset to invest or pay down loan and reborrow.

Best to modify slightly - instead of paying down the PPOR loan pay into an offset account.