What is discount rate
In Australia, when discussing fixed-rate loans, a premium rate is applied if you make additional payments or fully repay the loan ahead of schedule. It’s also a term used to describe when shareholders invest more equity in a company than the minimum required share capital.
A discount rate scenario arises if your locked-in fixed interest rate is lower than what the bank currently offers new customers. In this case, the bank profits from your additional payments. This profit is recognised as a discount, and it can be disbursed to you or offset against your outstanding debt. This excess is treated as capital income and is subject to capital gains tax for you as the borrower.
The possibility of obtaining a payout depends on the terms of your fixed-rate agreement, namely the interest rate lock-in period and the duration of your loan. Payouts cannot be made during any designated quarantine period.