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Interest in advance - it's that time again!

Discussion in 'Property Finance' started by headsonbeds, 22nd May, 2016.

  1. headsonbeds

    headsonbeds Well-Known Member

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    I'm going to fill out my CBA 1 year interest in advance forms this week. Any idea on what rates might be? Any hints or tips? I've done it several times previously and never had any issues, hard to break the cycle once you start though.
     
  2. wylie

    wylie Moderator Staff Member

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    I've worked out we only need to prepay one loan this year. The cycle can be broken if you have a few loans and can wean yourself off and then save the next prepayment for when you need it.

    I wonder if my bank can stuff up just ONE loan. I'll bet they can :D:p.
     
  3. sanj

    sanj Well-Known Member

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    haha I was about to tag u in this post @wylie
     
  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Get some pricing done beforehand. Depending how many years you're fixing for, you should be able to get a decent discount - well more than the 0.2 off the carded rate.
     
  5. Fungus

    Fungus Well-Known Member

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    Are there any disadvantages of going interest in advance? I mean with CBA it's a 0.20% discount of the fixed rate which is pretty decent.

    Even if it's not for tax purposes it's still worth considering? Or am I missing something important here?
     
  6. wylie

    wylie Moderator Staff Member

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    Don't confuse "interest in advance" with "fixing interest". You can do one, or do both.

    The problem with fixing interest is that you are locked in for the term of the fix. If you want to sell or refinance you will be up for a break fee.

    The good thing about fixing and paying in advance is bringing the interest usually paid in the following year into this financial year. That can help reduce your income if you've made a gain.

    The downside is that once you do it, the following year there is no interest on that loan and you can be caught having to prepay each year or find yourself paying more tax than you need to.

    If you have only one loan, and you make a gain and want to bring forward the interest deduction into the financial year that the gain is made, you have the deduction for the interest you've been paying each month and then in June you prepay the whole of the following year's interest, so you have two years' worth of interest to offset the gain.

    But the next financial year, you have no interest to pay and either have to fix and prepay it again the following June, or lose out on being able to deduct interest for that particular year.

    With several loans, it is easier to regulate how much you prepay and avoid prepaying in one year and then either having to continue to prepay or face a year where you have no interest deduction to offset the rental (and other) income.
     
    Last edited: 22nd May, 2016
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  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    You can only do both - you can only pay IIA on fixed rate loan. You can choose the length of the fix though.
     
  8. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    Are you sure? I've done it on a variable rate in the past
     
  9. wylie

    wylie Moderator Staff Member

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    I think I've confused things with my wording. I wont change the original post seeing it has been quoted, but when I said you can do one or the other I mean that you can fix for five years and prepay in year one, and every following year for the fix period you get to choose whether you want to prepay the next year or not.

    You can fix and prepay.

    You can fix and not prepay.

    But be aware you may get stung with a "you've decided not to prepay" fee.
     
  10. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    How do you prepay an undetermined, fluctuating sum?
    Not with every lender - with CBA for eg you'll have to prepay the full 5 years (annual payment for the year in advance) if you decide to pay in arrears you'll have to break the loan to amend it.
     
  11. wylie

    wylie Moderator Staff Member

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    Fair enough. I'm with Westpac. I realise each bank will have its own rules.

    I can fix and prepay, or I can fix and pay monthly. And if I fix for two years and prepay in year one, I can choose not to prepay in year two, but that entails a fee which from memory was a couple of hundred dollars.

    But I guess what I'm trying to say is that you "can" break the cycle once you prepay in one financial year. But you need to be careful and know what the rules are, and where you can be tripped up.
     
    Last edited: 23rd May, 2016
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  12. wylie

    wylie Moderator Staff Member

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    Actually, this is an interesting thing, and possibly something to take into account when choosing a lender. I find many things frustrating about our lender, but this seems to be one area where they offer more flexibility than some other lenders?
     
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  13. jchan86

    jchan86 Well-Known Member

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    With pre-existing fixed loans (e.g., CBA), I don't think you can do IIA with incurring a break fee... wierd
     
  14. CargoCult

    CargoCult Member

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    Would a bank allow one to fix and pre-pay 6 months of interest, instead of 12 months?
     
  15. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    no

    ta
    rolf
     
  16. headsonbeds

    headsonbeds Well-Known Member

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    Just got the rates back from CBA - Wealth package, investment prop obversely:

    1 year 4.59%
    2 years 4.24%
    3 years 4.34%

    Disappointing!!!:(
     
  17. tobe

    tobe Well-Known Member

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    Yep. I decided to revert back to variable monthly instalments instead.