Interest in Advance is a common strategy used by property investors
Interest in Advance loan are a tactic available to investors with investment property loans. Unlike standard loans where repayments are made on a monthly or fortnightly basis, Interest in Advance loans are paid in a single payment in June each year for the the following twelve months.
June is chosen as the most appropriate time because it is the end of the financial year.
Some investors choose this method as it allows them to claim the interest paid on the loan for the following twelve months in this years tax return. This increases the deductions in the current year to offset against income as a way of reducing tax.
For an investor holding a property for a number of years, they would potentially make an Interest in Advance payment in June each year, providing they have sufficient cash available to pay twelve months of interest.
Interest in Advance loans are fixed rate loans and can be put in place for upto five years, so that the annual interest payment would be due on the anniversary of the fixed rate loan start date.
One factor to consider is what happens when you no longer want to or can afford to make Interest in Advance payments? You may end up with a year where you have income from an investment property, but no interest to offset the income as it has already been claimed. There maybe a large tax liability waiting. The key of course would be to plan this final year when your taxable income is low, ie maybe you have retired.
Interest in Advance loans are one way of paying an investment property loan. They may or may not suit your investment strategy depending on your cash availability and your potential tax liabilities. Some careful thought an planning is required.
Interested? Contact Paul 0410 520 398 paul@halogenhomeloans.com.au
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