Interest in Advance

It’s the end of another financial year and I usually get a few calls around about this time asking me about paying Interest in Advance. So what is Interest in Advance all about?

Lets look at a normal PAYG employee earning $50,000. Under normal circumstances they would pay tax on $50,000.

Someone who owns an investment property might look like this:
$50k income + $10k rental income - $20k interest = $40k taxable income. They would pay tax on $40k income. This is standard negative gearing.

Someone paying interest in advance might look like this:
$50k + $10k rent - $20k (this years interest) - $20k (next years interest in advance) = $20k taxable income.

Or someone who as just purchased a property and doesn’t have any rent or interest for this year might look like this:
$50k - $20k (next years interest in advance) = $30k taxable income.

If you want to pay interest in advance you can’t just pay an extra $20k into your loan account…this would be seen by the bank (and ATO) as reducing your principal and not paying interest. You have to ask your lender charge next year’s interest to your loan account, and then you would need to pay the interest. Lenders usually give you a small discount in the order of 0.1% for paying the interest early. (Interest in Advance is not available on all loan products).

The other thing to keep in mind is that once you have paid next years interest in advance, the lender won’t charge you any interest for 12 months. So at the end of next year you will need to pay the following years interest in advance, and keep paying interest in advance for the life of the loan (or have a year where you pay extra tax).

So interest in advance isn’t really saving you from paying tax…it’s just redistributing the tax from one year to the next.

If you would like more information on Interest in Advance please call me on 02 9629 1888

Please Note – this is general information. You would need to see your accountant or financial adviser to determine whether paying interest in advance is suitable for your situation.

New Developments in Loan Products

This month we are looking at loans with No Mortgage Insurance, Low Doc loans above 80% and great fixed rate loans.

No Mortgage Insurance - The first thing we are seeing is a move by the lenders away from Mortgage Insurers. I can’t see that lenders will abandon Mortgage Insurance any time in the near future; but it is encouraging to see a bit more flexibility in lending criteria.

It’s generally accepted that above an 80% lend (or 60% for Low Doc) almost all loans had to be mortgage insured. Given that most lenders in Australia use one of the two major mortgage insurers, the lending rules above 80% were considerably less flexible.

We are now seeing a few lenders come out with uninsured lending products above 80%. This means that we only have to meet the lenders criteria and not worry about the Mortgage Insurers rules. It also means that borrowers save money by not having to pay mortgage insurance (or paying a greatly reduced “risk fee” instead of Mortgage Insurance. More on Mortgage Insurance next month.

Low Doc 85% - Most prime lenders limit their Low Doc products to 80% of the value of the security property. Some non-confirming lenders offered low doc loans as high as 95%, but these loans attracted a significantly higher interest rate and were only generally only attractive to borrows in desperate need of funds.

Now we have a Low Doc product that will allow you to borrow to 85% of the value of the property at a rate only marginally above regular 80% low docs (under 8% for those who are interested).  And the best news is lender will pay the mortgage insurance, potentially saving you thousands of dollars.

Fixed Rate Loans – We had a great fixed rate deal here, but the lender pulled it off the market early. Fixed rates in general are moving up across all lenders. If you want to know what rates are currently available, please give me a call on 02 9629 1888.

Do you want to know a Secret - Book Review

I guess it’s not such a secret anymore because it’s been all over the media in the past few months. The Secret DVD and Book are continuing to take the world by storm.

The Secret is a documentary by Rhonda Byrne that shows how to use the Law of Attraction to create everything you want in life.

Sounds to good to be true? Maybe you’re not into that sort of thing…..

I guess it’s not too hard to accept that people with the right attitude and the right thinking can “attract” the best opportunities. We all know people who do well at job interviews (or getting a pay rise, chasing women etc etc). The thinking behind The Secret is that we attract everything into our life, both good and bad.

So if everything we have in our life, including our career, our finances, our partner, our friends etc, is the result of us attracting it into our life, then by changing our thinking we can attract more of what we desire into our life.

I was listening to the Audio CD in the car one day. Instead of driving back to the office, I actually did exactly what the CD was telling me to do, and it resulted in an immediate increase in revenue to my business. I won’t put all the details here but feel free to ask me about it next time you see me.

Anyway, it’s well worth having a look at even if you are sceptical about these things. Unlike a book that might take you days to read, the DVD is all over in a few hours, which makes it easier to digest.

For more information have a look at

www.the-secret-dvd-shop.com.au