Interest in Advance:
What is interest in advance?
Interest in advance is the pre-payment of interest for a set term (normally 1 year). Basically, the interest for 365 days is calculated and paid to the bank in a lump sum in advance.
Why would I pay interest in advance?
There are 3 main reasons why one would pay interest in advance;
1) Convenience
If you are living and working overseas it can be very convenient to pay the interest upfront in one lump sum and then forget about making repayments for the rest of the year. Keep collecting the rent in a separate account and then use to pay interest in advance in the following year.
2) Discounted rate
Most lenders give an interest rate discount when paying interest in advance of normally 0.1-0.2% off the rate. Another advantage is that, as you have paid interest in advance no repayments are required.
3) Taxation benefits
If the loan is an investment loan then the taxation benefits of paying interest in advance can be substantial. To understand the taxation benefits of paying interest in advance one needs to have a basic understanding of negative gearing.
What is Negative Gearing?
Negative gearing is where the income from the property is outweighed by the expenses for that property like interest on loans, rates, insurance etc. If the expenses are higher than the rental income then your property is said to be negatively geared.
For the investor this can mean that in many cases you will get a tax deduction for the 2009 year for the interest you have paid to date AND all of next years interest as well.
Presuming you have a decent taxable income this can result in some excellent tax savings.
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From start to finish, Justin made everything feel straightforward and explained concepts to help us understand the process too. He went above and beyond to help us secure the best possible loan, taking the time to find the right bank and deal to suit our needs. Even when a few hurdles came up from our side, he was very flexible and found solutions for us! He is proactive in his approach, had very clear communication, and was always willing to make time for us.
Justin is very professional, yet we felt he genuinely cared for helping us. We felt completely supported every step of the way and would highly recommend him to anyone looking for a knowledgeable and dedicated broker! We will definitely be using him as our broker from now on.
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Ari & Nadene ThomasWe recently worked with Justin refinance our loan. This is the 2nd time working with him and both times have been a pleasure.
Justin has always gone above and beyond to assist us to ensure we get the best possible service. Not only does he show a professional attitude toward his role, but he also shows a genuine interest in our family to assist with our financial matters.
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