All the major banks a few months ago got a slap on the wrist from their governing body regarding how much money they were loaning for investment loans (the risk for the loan to value ratios was getting to high). You will now find you can't borrow 100% of the purchase price for any investment (especially the big banks) and most investment loans interest rates are now also higher (our variable rates are going up next month). That may be why the bank is suggesting to borrow 100% for a house you live in and renting out your current one, because you will most likely need a much larger deposit if you're buying a rental now.
PP is right that if you borrow money to live in a house it's not tax deductible, as the purpose of the loan has to be for investment, however if you have a loan still on the old one you will be renting that may become tax deductible (talk to your accountant). Also, if you're going to rent out your old house make sure you get it valued just before you start renting, as then when it comes time to sell you should only pay capital gains tax on any amount it's risen in value since it became an investment, not the entire time you've owned it.