Is the amount in the off-set account taken into consideration when calculating the total loan amount, for the purpose of calculating LVR?
Or would using the structure described in this thread cause LVR to increase as the IP loan interest is capitalised?
If so, this could be a major disadvantage of capitalising the interest, if you suddenly find you have exceeded your allowable LVR because your total loan size has grown?
Having thought about this again... I suppose you would just ensure that the maximum limit on the LOC plus IP Loan was within the agreed LVR, and then you could capitalise up to the LOC limit with no problems.
It just means that using this structure you need a greater amount of equity initially, compared to paying the IP loan interest.