Tax savings for property investors who take up HSBC interest upfront offer on fixed-rate mortgages

Property investors who take up an offer from HSBC Bank of a discounted fixed rate mortgage product if they pay the first year's interest on the loan upfront could cut their end-of-year tax bill by thousands of dollars, while making a small saving on their mortgage repayments.

HSBC has cut its fixed-rate mortgage products by 10 basis points and is offering an additional 10-basis-point discount for investors that who take up the “interest-in-advance” offering.

The rate cut means the bank’s three-year fixed-rate product has dropped to 6.09% but will drop to 5.99% for those investors who take up the interest-in-advance offer.

Paying the interest upfront will allow investors to claim a tax deduction for the interest expense earlier.

HSBC has calculated that investors taking out a $300,000 mortgage on a three-year fixed rate term would have to pay $17,970 interest in advance for the full year with mortgage repayments reduced by $300 over this period.

According to accounting firm Chan & Naylor, an investor on a taxable income of $100,000 would be able to reduce his tax bill by more than $7,000 (from $26,700 to $19,691.70)  by paying the $19,691.70 before the end of the current tax year.

Alice Del Vecchio, head of mortgages for HSBC Bank Australia, says paying interest in advance on a fixed-rate loan allows customers to enhance the tax effectiveness of their property investment. 

“With tax season approaching, many of our customers will be considering various investment strategies, so offers like these come at an opportune time,” she says.

The HSBC fixed-rate cut comes as ABS March housing finance data revealed that fixed-rate mortgage demand climbed to its highest level since April 2008, with nearly 15% of borrowers opting for a fixed-rate product during the month.

Please note this article does not constitute tax advice and the numbers quoted are for illustrative purposes only.

Here’s a guide to the range of headline three-year fixed rate products currently on offer:

5.79%

The three-year fixed-rate offering of Greater Building Society

5.99%

The three-year fixed-rate offering of Commonwealth Bank, ING Direct, ME Bank, CUA and Aussie, Citibank, IMB Building Society.

6.03%

The three-year fixed-rate offering of LJ Hooker Finance

6.04%

The three-year fixed-rate offering of ANZ

6.09%

The three-year fixed-rate offering of HSBC Bank Australia and NAB, St.George, Bank of Melbourne, BankSA

6.13%

The three-year fixed-rate offering of Suncorp

6.15%

The three-year fixed-rate offering of Myrate.com.au

6.19%

The three-year fixed-rate offering of Westpac and ANZ

6.29%

The three-year fixed-rate offering of Heritage Bank and Homeloans Ltd

6.33%

The three-year fixed-rate offering of Bankwest

6.34%

The three-year fixed-rate offering of Bendigo Bank

6.37%

The three-year fixed-rate offering of Yellow Brick Road

6.39%

The three-year fixed-rate offering of bankmecu

6.46%

The three-year fixed-rate offering of Resi Mortgages