Tailcat said this in voigstr's thread. What is the problem???? Suppose you have $100k PPOR and $50k IP in the same account. If you make a repayment of $150 (not an interest repayment) then ato says that $50 must come off the IP. Then: Deductible interest changes next month You have lost deductible interest (it will mount up...) If you then spend the $150 dollars, for food say, you have converted $50 into bad debt..... Solution..... Use two separate accounts (held against the same PPOR house)!!!!! A1: $100k with offset A2: $50k IO Pay $150 into offset account. All the money works on the bad debt. Spend the $150 on food, you still have $50k of good debt. Interest for the $50k account can be paid out of either of the other accounts. (Side benefit : your deductible interest payments are automatically recorded for you on your statement....) _______________________________________ I've been trying to wrap my head around the concept/benefit here... Could someone explain it to me in REALLY REALLY REALLY REALLY basic terms, perhaps give a scenario... Thanks guys.