Hi all, our accounting is suggesting we consider switching to a fixed rate on our Investment Loan and opting to pay Interest in Advance or Interest Only. Would welcome any feedback on this.
Cheers
WBHi WB
What was the basis for you accountants recommendation for the interest in advance? There’s nothing wrong with employing this strategy – but it would be handy to understand why it was recommended in the first instance.
In regards to interest only – do you have a loan on your principle place of residency? If so, you should be either parking cash into an offset account attached to that loan or paying down the principle (rather than paying down an investment loan). It’s in your interest to maintain your tax deductible debt at its current level whilst paying down (or paying into an offset account) your non-deductible debt (your home loan).
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thanks for the reply Jamie. Our PPR loan is already 100% offset, so all good there. I'm no rocket scientist when it come to clever accounting and taxation, but I suspect our account is talking Interest Only as a means of gaining maximum tax advantages. I'm just trying to get a better understanding of how Interest Only works, and at what point is the principal paid off the investment loan, or isn't it?
Regards, Warren
Hi Warren
No worries at all.
With interest only, you’re never paying down the principle. For some people, the notion of not paying down debt is bizarre. However, when investing in property, it’s the growth of the asset (over time and/or manufactured through renovations, etc) that most investors aim for (not necessarily to pay off the loan).
Will you have a mortgage on your principle place of residency? That will be one of the major factors in determining how your investment loan should be set up.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Prepaying will bring your deductible expenses forward. If you have exceptionally large income this year then it may be wise, if not then next year you will have a problem of little deductions – unless you prepay the next years again
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
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