Avoid Using Redraw on an Owner Occupied Loan Many people use redraw facilities on loans and rarely think of the consequences - which could be costly if the property is ever rented out. Borat has a $100,000 property with an $80,000 interest only loan. He pays the loan down to $50,000 and then decides to buy a new car for $30,000. The balance is now $80,000. Later Borat moves out and rents the property. But he has a problem: Only the interest on the $50,000 loan is deductible and, He has created a mixed purpose loan. Only $50,000 is deductible because this is the part of the loan that is associated with the original loan used to purchase the property. The other $30,000 relates to the purchase of a car which is a private expense. Solution - none as it was too late once the loan was paid down. But the situation could have been entirely avoided if Borat didn’t pay any extra into the loan but parked his extra cash into an offset account. He could have used this to buy the car and would still be able to claim the interest on the full $80,000 of the loan once the house was available for rent. Indirectly the interest on the private expense of a car is deductible in this case.