Hi guys,
Just wondering if there is any truth to this. I have been told that if for instance you had a interest only investment loan and you pay the annual interest upfront that sometimes the lender will offer you a small discount maybe a quarter of a percent discount on your loan?
anyhelp with this would be much appreciated.
yes, true. Usually around 0.1% though.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
So realistically its not really worth the trouble.
It may be worth the trouble, but not for the interest savings. Imagine if you have a high income this fin year and expect a very low income next year – you could bring your deductions forward and save a heap of tax.
Also consider the paying in advance will mean fixing you loan for a year too.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Ahh, so Terry you are saying that if for example you pay your interest upfront and the rate you pay is 6%, and interest rates go up to 6.5% 2 months later, you could potentially save half a percent for the remaining period of that year.
So if you are doing this for a number of years, and interest rates keep climbing, if you are paying upfront, then you could save a fair bit of interest as each time you paid your interest upfront you would be paying the current market rate, not the increased level for later in the year.
THGH
Yes sure you could certainly save 0.6% with the 0.5% increase and the 0.1% you receive for the prepayment.
Richard Taylor | Australia's leading private lender
Do you know if you could pay upfront for a P&I loan, or is it only on IO loan.
Most lenders need it to be interest only. Base on a fixed rate (not variable rate of the day).
Therefore say you have a loan of 200k, 1 year fixed rate of 6.5% = $13,000 interest.
The $13,000 is charged in a lump sum – therefore deductable in the tax year it is charged. This means that if you were at the end of June and already had almost a full years interest paid, you could pay the next years interest: – providing almost 2 years interest deductions in that financial year. This triggers a bigger loss and therefore a bigger tax rebate. Problem is the next year has almost NIL deduction for interest – unless of course you prepay again. This is where Terry refers to it being good it if you have high income this year, low income future years.
This is also good when via a discretionary trust, by promoting losses and carrying them forward profit distribution can be delayed several years. Handy if one of the beneficiaries expects to have children in the future but is on a strong income now.
Also be aware that simplying paying 12 months worth of repayments in June won't work – you need a special loan with the interest up front, otherwise you will be paying a lump sum off the principle and then be charged interest each month.
Some people haven't been aware of this.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks guys, there is some helpful info there.
Cheers.
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