After reading further in this forum, I got the impression that many posters agree that a LOC is practically the same as having a IO loan with offset, so am I correct is saying that if I do end up refinancing with a LOC (to get equity out of property) this in effect means my current loan needs to be increased to put that money into the LOC.  So I could in fact do the same with an IO loan with offset, by increasing the loan limit and putting that money in the offset account.

Property Value = $400,000
80% LVR = $320,000
Loan = $250,000
there is $70,000 equity in property.

So does this mean if I pull that equity out regardless of whether it is a LOC or an IO loan with offset the loan value will need to be increased to $320,000 and the $70,000 would be available in either the LOC or offset account and both still reducing the interset you pay.

Or do I have this totally wrong.