Pre-paid interest

[Timocracy]

I'm with rams, looking to fix in 200K of my 245K debt at 5.95% over two years for a investment property.

They offer a .15% discount for interest in advance. I have the coin in an offset account(6.78% variable) and no plans for it in the near future.(I'm overseas backpacking for at least another 9 months)

Is the discount of .15% a good deal? or am I better of leaving it in offset account and paying monthly?

 

[Aaron_C]

If you do it just before June 30 you can save a bit of tax through prepaid interest.

 

[Rolf Latham]

I'm with rams, looking to fix in 200K of my 245K debt at 5.95% over two years for a investment property.

They offer a .15% discount for interest in advance. I have the coin in an offset account(6.78% variable) and no plans for it in the near future.(I'm overseas backpacking for at least another 9 months)

Is the discount of .15% a good deal? or am I better of leaving it in offset account and paying monthly?

Prepaying will bring fwd the tax dedn..... which may not be what you want if you have low taxable this year., and larger next year

Ta

Rolf

 

[SYD]

How much is in the offset account? If it more than $45k will it also offset the fixed portion?

Apart from that, I would keep the cash in the offset @ 6.78% rather than pay a sub 6% loan.

SYD

 

[Terryw]

Can you borrow to pay that interest?

 

[Rolf Latham]

Can you borrow to pay that interest?

nice

you have been around a while ........

capping interest AND bringing it fwd .

New sales tool

thanks Terry !

t
rolf

 

[Terryw]

Hi Rolf,

By being overseas he would have a good basis of claiming a need to borrow too. This would free up more cash for future private expenditure.

 

[Melbournian]

depends on your circumstances. if you have a lot of tax to pay it maybe worthwhile.

 

[Ergophobia]

Can you borrow to pay that interest?

Wouldn't that compromise tax deductibility? Like capitalizing interest?

 

[Rolf Latham]

Wouldn't that compromise tax deductibility? Like capitalizing interest?

Capitalizing interest is fine in many instances

Seek specific advice

ta

rolf

 

[Terryw]

Wouldn't that compromise tax deductibility? Like capitalizing interest?

If the underlying loan is deductible then the interet on any capitalised loan would generally be deductible. One exception would be where the dominant purpose is to pay down a PPOR quicker. However, this doesn't apply in this situation (I think) and the borrower is overseas so they would have good grounds to borrow to pay the interest.