Annuity In Advance

AAA

DEFINITION of 'Annuity In Advance'

An amount of money that is regularly paid at the beginning of a term. Rent is the classic example of an annuity in advance because it is a sum of money paid at the beginning of the month to cover the 30 days to follow. An annuity in advance is also called an "annuity due."


The opposite of an annuity in advance is an annuity in arrears (also called an "ordinary annuity"). Mortgage payments are an example of an annuity in arrears. Like rent payments, mortgage payments are due on the first of the month; however, the mortgage payment covers the previous month's interest and principal on the mortgage loan.

INVESTOPEDIA EXPLAINS 'Annuity In Advance'

One instance where the difference between an annuity in advance and an annuity in arrears matters is in the valuation of income properties. If payments are received at the beginning of the rental period rather than at the end of the rental period, their present value increases.


Don't be confused by the name: an "annuity in advance" is not the type of investment product that we usually think of when we hear the word "annuity" in finance.

RELATED TERMS
  1. Lifetime Payout Annuity

    A type of insurance product that pays out a portion of the underlying ...
  2. Wraparound Annuity

    A type of annuity that allows the investor (the holder of the ...
  3. Annuity

    A financial product sold by financial institutions that is designed ...
  4. Annuity Due

    An annuity whose payment is to be made immediately, rather than ...
  5. Fixed Annuity

    An insurance contract in which the insurance company makes fixed ...
  6. Deferred Annuity

    A type of annuity contract that delays payments of income, installments ...
Related Articles
  1. Explaining Types Of Fixed Annuities
    Bonds & Fixed Income

    Explaining Types Of Fixed Annuities

  2. An Overview Of Annuities
    Home & Auto

    An Overview Of Annuities

  3. Taking The Bite Out Of Annuity Losses
    Options & Futures

    Taking The Bite Out Of Annuity Losses

  4. The Cost Of Variable Annuity Guarantees
    Retirement

    The Cost Of Variable Annuity Guarantees

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center