All Topics / Finance / Is it true?

Viewing 10 posts - 1 through 10 (of 10 total)
  • Profile photo of T_H_G_HT_H_G_H
    Participant
    @t_h_g_h
    Join Date: 2007
    Post Count: 27

    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.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    yes, true. Usually around 0.1% though.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of T_H_G_HT_H_G_H
    Participant
    @t_h_g_h
    Join Date: 2007
    Post Count: 27

    So realistically its not really worth the trouble.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    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 Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of T_H_G_HT_H_G_H
    Participant
    @t_h_g_h
    Join Date: 2007
    Post Count: 27

    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.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    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

    Profile photo of T_H_G_HT_H_G_H
    Participant
    @t_h_g_h
    Join Date: 2007
    Post Count: 27

    Do you know if you could pay upfront for a P&I loan, or is it only on IO loan.

    Profile photo of BankerBanker
    Participant
    @banker
    Join Date: 2010
    Post Count: 371

    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.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    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 Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of T_H_G_HT_H_G_H
    Participant
    @t_h_g_h
    Join Date: 2007
    Post Count: 27

    Thanks guys, there is some helpful info there.

    Cheers.

Viewing 10 posts - 1 through 10 (of 10 total)

You must be logged in to reply to this topic. If you don't have an account, you can register here.