I have a standard home loan my PPOR which I have now split - one subaccount for the PPOR (P and I) and one for investing in shares (interest only). I keep the investment split strictly for investing. My loan provider does not provide a facility for pre-paying interest for next financial year on the investment portion. If I were to, say, simply prepay a year's worth of interest, would this be tax-deductible, or would it be considered as as payment of principle? There is the option of offsetting this payment against future fortnightly payments, but I still think this would just reduce the principle and effectively then capitalise the interest for the next year or so. Maybe I am on the wrong track?