Investors - Have you considered paying Interest in Advance?

April 10, 2014
Melissa Burt

With the end of the financial year just a few months away, you may be starting to think about finalising your investment and tax strategies for this financial year.

One strategy that may be relevant to you is prepaying interest, known as interest in advance.

Interest in advance allows eligible clients to pay the interest they would normally incur throughout the year as one upfront interest payment.

Prepaying interest allows you to fix your interest for 12 months and receive an upfront discount off the standard fixed rates at the time of application.

Depending on your individual circumstances, prepaying interest may have several benefits.

Budgeting– prepaying interest can be helpful for managing cash flow or budgeting. You won’t have to think about interest payments for 12 months or worry about fluctuating interest rates. For an investment loan, this gives you more certainty when budgeting for rental property expenses throughout the financial year.

Tax efficiencies– the interest may be deductible in the year it’s paid. This can be beneficial if you anticipate that your income may be reduced in the following year. Prepaying interest could enable you to bring forward the interest deduction into the current year where you expect your income to be higher (eg you may be taking maternity leave or have a leave of absence from work for an extended period in the following financial year). It may be beneficial to claim the interest tax deduction in the current year where the higher income is earned.

Time savings– you only need to claim a tax deduction for one prepaid expense, rather than keeping records of multiple expenses paid throughout the year.

If you are considering fixing and prepaying interest before the end of this financial year, it is recommended you seek advice from a financial adviser or accountant to determine whether this strategy is appropriate. Fixed rate loans may be subject to significant break costs and you should refer to your loan contract for details of break costs applicable.

Mortgage Choice have access to a number of interest in advance loans.

For more information, please call me, Melissa Burt on 0403 382 327.

Posted in: Property investment

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