An SMSF home loan is a loan that trustees of a self managed super fund (SMSF) use to purchase an investment property. Any returns on the investment property (such as rental income or capital gains) are fed back into the SMSF to increase your retirement savings.
The investment property can’t be acquired from, lived in or rented out (except for some limited circumstances) to an SMSF fund member or any of their related parties.
SMSF loans are pretty similar to a normal home loan, but they can be more complex to process with severe fines of over $200,000 for trustees if the SMSF loan application is not compliant or properly structured.
This is why it’s strongly recommended to seek out an accountant and a mortgage broker or financial adviser experienced with SMSF loans to help with the setup and guide you through the process.
You are only allowed to buy property through your SMSF using a limited recourse borrowing arrangement (LRBA) which means the lender can’t seize any of your other SMSF assets if you default on the SMSF loan.
In order to refinance an SMSF loan, you typically have to meet strict approval requirements that include:
Borrowing up to 80% of the value of the property, which means the entire cost to switch/refinance your loan must be no more than this amount.
The property you’re buying using an SMSF loan must be a standard residential property in a metro location.
You typically will need to have between 10-20% of the property value in liquid assets after settlement.
The new loan can’t be any more or less than the current loan amount and has to have a loan term of between 15 and 30 years.
Your current loan must be more than one year old with on-time repayments for the last six months.
Refinancing an SMSF loan can be a more complex process than refinancing a traditional home loan, so it’s essential to provide the correct documentation. This includes:
SMSF trust deed.
Custodian trust deed.
Latest super fund statement prior to the establishment of your SMSF.
The last two years of audited SMSF annual returns.
An accountant’s letter confirming the company trustee is not trading.
The last two years financial reports.
The last two years of income tax returns on all related entities.
Fund income tax and regulatory return.
If you’re ready to refinance your SMSF, get in touch with a loans.com.au lending specialist. We have an experienced, Australian-based team here to help you. At every step of the way, you’ll talk to a real person from our friendly team of lending specialists, and we can help as little or as much as you like from application to settling your SMSF loan, and beyond.
According to loans.com.au Managing Director Marie Mortimer, benefits of refinancing your SMSF loan include saving money by getting a better deal on your loan, potentially giving you thousands more to put towards your retirement.
“At loans.com.au, we want to make the SMSF space more competitive by offering first class service coupled with low interest rates, to allow those who are building their wealth for retirement, to succeed sooner.”
“By saving money on interest rates, you can certainly build your retirement wealth quicker,” Ms Mortimer said.
One reason to refinance your SMSF loan is to get a lower interest rate. If the interest rate on your SMSF loan is higher than comparable SMSF loans on the market, you may want to refinance and save yourself thousands of dollars over the life of the loan. Our SMSF loan has a competitive 3.69% p.a. variable interest rate (3.70% p.a. comparison rate).
Alternatively, you may want to refinance to an SMSF loan that offers better/more features than your current SMSF loan offers. Our SMSF loan has no monthly or ongoing fees, unlimited extra repayments, and online access via our easy to use online app Smart Money.
There are a few things to consider before refinancing your SMSF loan, including:
ATO requirements: The Australian Taxation Office (ATO) stipulates that you cannot increase the amount you are borrowing against the property when refinancing an SMSF loan. You also cannot refinance to improve the property through renovations, but repairs are allowed. There are a lot of ATO rules and requirements around SMSF loans so it’s strongly recommended to seek expert advice.
T’s and C’s: SMSF loans come with a lot of terms and conditions attached so it’s important to do your due diligence and read the fine print.
Repayment terms: Would switching to a longer loan term decrease your monthly repayments? Similarly, perhaps you could save money over the loan term by switching to a loan with an interest-only repayment period.
Interest rate, fees and charges: One of the main reasons why people refinance their loans is to get a better interest rate, so do your research and compare rates offered by a range of lenders. Calculate how much you could save on your repayments by switching to an SMSF loan with a more competitive interest rate. Also consider whether switching from variable to fixed or vice versa could save you money. You also want to consider how much you could potentially save in fees by refinancing loans. What fees and charges currently apply to your SMSF loan compared with the fees and charges on other SMSF loans? Our SMSF loan has no monthly or ongoing fees.
The time it will take to refinance: Refinancing a regular home loan can be time consuming, but refinancing an SMSF loan is even more time consuming because there’s a lot more paperwork involved. Ask yourself if the benefits of refinancing outweigh the time and effort it will take to refinance.
Benefits of refinancing vs the cost: You also need to weigh up the potential benefits of refinancing your SMSF loan against the costs that come with refinancing like break costs. Setting up the new SMSF loan can also be costly, with application, establishment and legal fees.
According to the ATO, a trustee can use a limited recourse borrowing arrangement to fund the purchase of a single asset (or collection of identical assets that have the same market value) to be held in a separate trust.
Any investment returns earned from the asset go to the SMSF trustee. If the loan defaults, the lender's rights are limited to the asset held in the separate trust. This means there is no recourse to the other assets held in the SMSF.
Australian law effectively prohibits people from living in a residential property owned by their SMSF. However, this situation changes when you retire only if the property is transferred to you (meaning it is no longer owned by your SMSF).