HOW CAN PRE-PAYING INTEREST BE OF BENEFIT TO ME ?
AND
MORE IMPORTANTLY HOW DOES IT WORK?
Lets deal with the second first. Very simply it means that you prepay 12 months of interest on your loan in advance. So towards the end of the financial year, for example BEFORE the 30th June 2008 you will pay 12 months of interest in advance, taking you to the 30 June 2009. So you have pre-paid next years interest and can now claim it as a deduction the current financial year. So in July, investors who are eligible to do so can get back some of that interest back in the form of a tax deduction.

You can’t just do this with any loan you have, when the loan is negotiated or applied for, you need to ask your broker for an ‘interest in advance loan’.

An interest in advance loan is similar to ‘fixed rate, interest only standard residential home loan’ EXCEPT you pay the interest in advance. (more…)