Pre-paying Home Loan? Read This to Know if it is a Good or a Bad Idea Oct 1, 2018 | Home Loan If you are planning to buy a new property for yourself, then we have something of interest to you. Borrowing money is not as easy an option as it may seem. It brings along the burden of repayment and its consequences. To get rid of such a burden, you can avail the option of the payment of interest on loans in Australia in advance. Interest in Advance is an option that is available on interest-only Fixed Rate Investment loans. This feature lets you pre-pay the consequent year’s interest on your loan, which can be claimed back as a deduction in this year. As a result, the burden and risk of failure in payment of interest reduces, thereby benefiting the borrower of loans in Australia in the long run. This also implies that you will have the freedom to make monthly payments during the year. You pay 12 months’ interest before the interest in advance period starts. For a new loan, this is usually at settlement. If you don’t have a common bank transaction account already, you must open one in case any fees or charges are needed to be debited to the account. During the Interest in the Advance period, you won’t be able to reduce the principal of the loan. Because it is a fixed-rate loan, if you repay the loan or switch to another type of loan, you may be charged an Early Repayment Adjustment and administration fee. The option of pre-payment of interest on the loan is available only on investments where the interest rate is fixed. It is a repayment option that offers an additional interest rate discount for paying the interest of 12 months in advance. If a client is looking to reduce his tax liability for the coming financial year, this option of prepaying the interest and consolidating the interest repayments into one lump sum payment may definitely work well for him. Any individual can consult his business loan broker for details about the rate of interest on the loan and understand the terms and conditions. For instance, if the loan amount was $300,000 and the fixed rate of interest was 3.8%, with the interest only in advance scheme, the repayment for 12 months would be $ 11,400. Most Fixed Rate Investment Property Loans and Low Doc Fixed Rate Investment Property Loans are eligible for Interest only in Advance. For customers who already have an investment property loan, most lenders will allow them to change to an Interest Only in the Advance product. Prior to the expiry of the 12-month Interest in the Advance term, your lender will contact you to see if you would like another Interest in Advance term or another arrangement. In case you have further queries, you must talk to your business loan broker or financial advisor to see if this product meets your tax needs. This information is general and is subject to change at any time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.