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. Bonds & Fixed Income

    Explaining Types Of Fixed Annuities

  2. Home & Auto

    An Overview Of Annuities

  3. Options & Futures

    Taking The Bite Out Of Annuity Losses

  4. Retirement

    The Cost Of Variable Annuity Guarantees

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center