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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Brendan ConquestWe have been working with Justin for almost 10 years and he has always made the process easy and time efficient. Justin’s help to get things over the line is stress free and uncomplicated, he always handles everything with such care and compassion.
We are extremely grateful for Justin’s services and would highly recommend him and the MAP home Loans team to anyone in need of help, advice or guidance with their home loans.
Thank you, Justin!
Timothy RussMy Wife and I worked with Justin to purchase our first home and we couldn’t be happier with the help we received to make our dream a reality. Justin had answer’s to every question and made it very easy to understand how it all works. I highly recommend using Map home loans to take the stress out of buying a house.
ShannonJustin was brilliant to have as an broker. He worked with my schedule and got everything organised with good counsel and assisted with resolving any issues, and where he wasn’t able to personally, pointed me in exactly the right direction to work the issue, myself. Absolutely will be utilising his services again in the future.
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