Smart Ways To Use Loan Splits And Offsets When Refinancing

Using loan splits and offsets when refinancing an investment portfolio means separating each loan by purpose and linking offsets to the right splits so you protect tax deductibility, improve cashflow and keep flexibility for your next purchase.

In practice, that looks like one main loan per property, separate equity‑release splits for each purpose, and offsets under the loans where cashflow matters most. Done properly, you can often lift buffers and reduce risk without increasing total debt.

Clear, purpose-based loan splits and offsets make an investment portfolio easier to manage.

1. What are loan splits and offsets in a portfolio refinance?

1.1 Key definitions

Loan split: one facility broken into multiple sub‑loans, each with its own limit, repayments and purpose (e.g. Property A loan, Property B reno, investment buffer).

Offset account: a transaction account linked to a specific loan split where every dollar reduces the interest charged, but doesn’t change the loan’s tax purpose.

ATO guidance is clear: deductible interest depends on how the borrowed money is used, not which property secures it. Separate splits for each purpose keep this tax tracing clean and support the principles in [/insights/ato-traps-investment-loan-refinance-how-to-avoid].

1.2 Why structure matters more than rate

When you refinance an investment portfolio, you’re deciding:

1. Which debts you want gone first.
2. How much buffer you need in cash or offset.
3. How easy it will be to sell or reshuffle properties later.

A slightly higher rate on a clean, flexible structure often beats the absolute cheapest rate on one messy, cross‑collateralised loan.

2. Core principles: splits, offsets and tax safety

2.1 Keep one main loan per property, then add purpose-based splits

Across our portfolio work, a consistent rule has emerged (see also [/insights/refinancing-3-5-property-portfolio-step-by-step-lvr-lmi-game-plan]):

• One primary loan per property (secured only by that property where possible).
• Extra equity‑release splits for each distinct purpose (deposit, reno, business, buffers).
• No mixed‑purpose redraw.

This lines up with the existing fact base that each new equity release should sit in its own labelled split with a single purpose.

2.2 Offsets beat redraw for flexibility and tax clarity

From a tax perspective, redraw is new borrowing every time you take money out. Use redraw for private purposes and you instantly create a non‑deductible portion that must be apportioned going forward.

By contrast, parking cash in an offset does not change the loan’s tax purpose, even if you later spend that cash privately. That’s why we typically recommend:

• Use offsets for all cash buffers and surplus rent.
• Leave redraw alone on investment loans unless funds are for the same investment purpose.

This approach supports the principles outlined in [/insights/tax-impact-changing-investment-loan-repayments-ato-rules].

2.3 IO vs P&I splits alongside offsets

For many investors, the right mix is:

• Home (non‑deductible) debt on faster P&I with minimal offset.
• Investment debt often on IO with bigger offsets to manage risk.

The detail sits in our IO/P&I guides at [/insights/refinancing-multiple-investment-properties-portfolio-io-vs-p-and-i] and [/insights/smart-io-p-and-i-splits-home-investment-loans]. Here we’re focused on how splits and offsets support that strategy.