My question relates to interest deductibility of a refinanced loan. When an investment loan that has a non-deductible portion is refinanced and there is a surplus that is allocated to the original loan account i.e the original loan now as a credit balance, is the non-deductible percentage of interest on the new loan up to the payout figure of the old loan locked in and the interest on the surplus in the original loan account non-deductible as it is not used currently for the investment property but only siting in the account as a contingency? If the surplus funds left in the original loan account are subsequently utilised over time for the investment property will the non-deductible interest in the refinanced loan on this surplus then become deductible interest?
Secondly, once the non-deductible interest on the surplus is eliminated in this manner, if further funds are deposited into the original loan account and are also utilised for the investment property, can the original non-deductible percentage of interest be gradually reduced also in the refinanced loan?
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