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8% non-deductible versus 8% deductible, at a 30% marginal rate, is 2.4% of interest. I would consider that more than a marginal improvement. Granted you're exchanging that for 5% non-deductible, but the benefit is still about 1%.

Not going to comment on the implications of airbnb income on renting out the PPOR, but re the substitution, my suggestion (if possible) would be to substitute and just let the fixed loan run.

Correct in terms of the mechanics. I can't comment on the deductibility bit. Obviously this is on good if you can deduct the interesto on the 8% fixed loan. I don't know enough about what actually happens in a security substitution to comment.

Does substitution of security involve re-settlement of the fixed loan? If not, the tax implications might be negative in terms of it's not a 'new' borrowing to purchase the IP, though I'm not sure how else you could construe it since you end up with another property and another loan.

Question for the brokers. Would this sort of loan allow substitution of security? Switch the fixed to a new IP?

There are a couple more variables: 1) move out and change the property to an IP. The interest is deductible. 2) if you break the loan you can offset / pay extra, but given your situation shouldn't you be more focused on increasing your asset base? That means using extra money to buy more...

I'd suggest actually talking to the bank or a broker to see whether this is actually possible.