Why do you recommend LOC versus ordinary home loan? Lets assume the PPOR is fully paid off and I want to draw on equity to use as deposit on IP. I would have thought that an ordinary home loan would be cheaper as a source of funds for a deposit. And there is no risk of cross contamination or tax deductibility issues as the loan on the PPOR is purely for investment purposes.
Because a payment can be made from a LOC directly. With standard IO variable loan products some allow you to pay directly from a loan amount but many (most maybe) don't. You will also have to draw down the loan fully at settlement. Lots of issues which could lead to the interest not being deductible.
Note that I only recommend a LOC for the release of equity, not for the main loan - not ever!
Once the LOC is used then the LOC could be converted to a IO loan.