1st IP – what to do with existing loan?

Hi,

This forum has become a great source of information for me but Im yet to find an answer on here regarding my current situation.

I have a PPOR recently valued at $565K with a mortgage of $420K, from which I recently refinanced to access some of the equity. My lender allowed me to borrow upto 90% LVR so I borrowed $35K for purposes that were non investment related. I did not create a separate loan when I borrowed this, my existing loan was just drawn out by an additional $35K.

Long story short, the $35K is no longer required for its intended purposes and I was looking to invest it (along with some additional equity) to go towards a deposit to purchase my first IP.

Now, as the $35K was not intended to be used for Investment purposes, I parked it in an offset account and understand that if I used it towards a deposit on a property, that I would not be able to claim the interest on this as a tax deduction.

My question its this. Is it possible for me to repay that $35K back onto the existing home loan, bringing the loan balance back to $420K and then refinance again to borrow a bigger chunk to go towards an IP? My understanding is that the best way to structure the loans would be to create a separate loan for the IP deposit and not have the money pass through any savings accounts in order to be able to claim the interest as a deduction.

Any information would be greatly appreciated.