How to refinance an SMSF loan
If you’re looking around for a better deal on your SMSF loan, refinancing may be a good choice. Refinancing an SMSF loan can be more complex and time-consuming than refinancing a typical home loan. However, it does offer a range of benefits.
In this article, we provide quick tips and tricks on how to refinance an SMSF loan:
Know why refinancing an SMSF loan is different
An SMSF loan and your standard home loan are two very different finance products. An SMSF loan is what’s called a limited-recourse borrowing arrangement (LRBA).
Since your loan will be taken out by your SMSF and not yourself personally, an LRBA is used as a way to protect your SMSF and its assets. Should you be unable to repay your loan, your lender cannot seize any of your SMSF’s other assets to recoup their losses, making them riskier for the lender.
Borrowing through your SMSF can also be risky, because if your fund runs into any financial or cashflow problems, you aren’t able to make personal contributions.
Meet eligibility criteria for SMSF refinance
You will need to ensure you meet the eligibility criteria and that the loan is suitable for your fund’s investment needs. Here are some common eligibility requirements when refinancing an SMSF loan:
- Some lenders require a 70% loan-to-value ratio. If the value of the SMSF property has changed, so could the refinance cost.
- According to the Australian Taxation Office (ATO), refinancing an SMSF loan must not increase the amount you're borrowing against the property. You can generally borrow up to 80% of the property's value, so the entire cost of refinancing must be lower than this.
- Your SMSF property must be a standard residential or commercial property. It should also meet lender requirements.
- There must be at least 10% to 20% of the property value in liquid assets after settlement. The percentage varies from lender to lender.
- The SMSF refinance loan term must be between 15 and 30 years.
Gather the necessary documents
In addition to meeting the lending criteria, you will need to have a few supporting documents ready to supply with your application. This may include:
- SMSF tax returns
- Audited SMSF financial statements
- SMSF trust deed
- Custodian trust deed
- Bank statements and/or audited financial statements
- SMSF income tax and regulatory return
- Financial reports
- Income tax returns
- Latest statement prior to establishing the SMSF
It’s best to have these documents on hand before you proceed with your SMSF refinance application. Having them ready can make the whole refinance process go smoothly without any delays.
You should also consider speaking to a loans.com.au lending specialist. Our talented team can help you with the process of refinancing an SMSF loan or answer any questions you might have about the process. You can get in touch by calling 1300 538 089.
Understand the costs of an SMSF refinance
Just like refinancing a home loan, refinancing an SMSF loan costs money. Consider all the expenses before deciding whether refinancing ends up being more cost-effective than sticking it out in your current LRBA.
Refinance fees include break costs and early payment fees on your current SMSF loan. Your property may need to be professionally valued, which would mean a valuation fee. There are government fees, as well, to be paid to the Land Titles Office.
You should also consider the costs when you apply for an SMSF refinance, from the loan application fee to the ongoing fees.
Find a good deal on your SMSF refinance
Refinancing your SMSF loan can let you take advantage and potentially save yourself thousands of dollars. That’s why finding an SMSF refinance with lower rates and better loan features than your current loan is so important.
It’s always best to shop around to see what types of SMSF refinance deals are out there. This will give you a better idea of how much interest rates are and what kind of features are available. You’ll also see the common loan terms and conditions.
Aside from interest rates and loan features, there are also SMSF refinance options designed for different borrowers. Check out the range of SMSF refinance loans to see which one suits your needs best.
Apply for an SMSF refinance
After you’ve weighed the costs of a refinance, made sure you’re eligible, gathered the needed documents, and found the ideal SMSF refinance loan, it’s time to submit your application. The whole SMSF refinance process differs depending on the lender.
At loans.com.au, we offer an easy and streamlined application process. Because everything is online, you don’t have to worry about taking time out of your day to visit a branch or print out physical copies of your documents. All you need to do is apply online!
Find out in under 2 minutes if you qualify for one of our low rate home loans.
About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
