Interest in Advance.

[Liverpool St]

Hi,

I would be interested in people's opinions on interest in advance payments. As I move into retirement I am downsizing some of my older properties that I purchased releasing some funds. I am thinking of refinancing to a bank that offers interest in advance but not many banks offer that loan. My initial problem with it that it makes the loan inflexible for the 12 months and the "sting in the tail" when the next year comes up.

Your thoughts?

Thanks

 

[Rolf Latham]

Most lenders do have iOA but don't publish it

iOA is generally used for a tax advantage Usually a deferment

Ta
Rolf

 

[Corey Batt]

Why are you looking for interest in advance specifically? Rate chasing?

Generally there are some very sharp rates which are just as competitive to a 1yr in Advance rate without the hassles.

 

[Terry_w]

It should only br done if you are expecting an unusually high income in one year/ But even then any tax savings may not be that much. You also need to consider the income in the year after too.

 

[Liverpool St]

Why are you looking for interest in advance specifically? Rate chasing?

Generally there are some very sharp rates which are just as competitive to a 1yr in Advance rate without the hassles.

Thanks. I was looking at offsetting some capital gains when I offload properties in retirement

LE

 

[Liverpool St]

It should only br done if you are expecting an unusually high income in one year/ But even then any tax savings may not be that much. You also need to consider the income in the year after too.

Thanks Terry,

As I said to Corey I will be offloading some properties in the next few years and the interest in advance will help me reduce some CGT.

 

[Corey Batt]

Thanks. I was looking at offsetting some capital gains when I offload properties in retirement

LE

Timed correctly that can be a prudent move. You'll find quite a few lenders do offer interest in advance, it' just not a common product used unless there are specific circumstances which warrant it.

 

[Liverpool St]

Interest in Advance

Thanks Corey,

I have recently purchased a unit at New Farm and East Brisbane for longer term growth. In the meantime I am a contractor and looking at retirement. While I am still working I am going to refinance into a interest in advance loan and will start selling off into retirement, probably Sydney first. Currently I have 7 IPs, so in 6 months or so at age 64 I will start selling off and sell one every 3 years or so (or as needed).

LE

 

[Terry_w]

LE I think this is a good strategy. Just make sure non are cross collateralised and make the IO period as long as possible before you stop working.
Also watch out when fixing as you may need to show income with some banks when loans are changing around.

You may be able to take advantage of the seniors tax offset, make a deductible contribution into super and draw a pension from super tax free. Pensioners can earn up to about $30k and pay no tax so if you had no income other than a capital gain of $60k you may pay no tax.

If you make a deductible contribution into super of $30k you may be able to earn $60k and pay no tax, so a $120k capital gain.

If you have a spouse and jointly owned property then it could be a $240k capital gain.

To get a $240k capital gain you may be able to set a property for say $300k more than you purchased it and then use all the relevant costs insurred to reduce the taxable gain.

And then combine that with increasing deductions in the year of sale will mean even higher figures.

Make sure you get advice from your tax advisor before selling. You need to work out what the gain would be so you can plan before selling.

 

[Liverpool St]

Terry,

Great advice. Thanks