Refinance SMSF Loan

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Refinancing an SMSF Loan

What Is an SMSF Loan?

An SMSF loan is a type of loan that allows you to borrow money through your self-managed super fund, which is essentially your retirement fund. The main benefit of using an SMSF home loan is that it has lower interest rates and fees than other types of loans. It also offers flexibility, as you can borrow as much or as little as you need and repay it in full at any time.

SMSF loan refinancing is a bit more nuanced than refinancing a typical home loan or personal loan. Since it’s your SMSF applying to refinance the loan and not yourself, a Limited Recourse Borrowing Arrangement or LRBA is used to protect your SMSF and its assets. If your loan remains unpaid, your lender cannot seize any of your SMSF’s other assets.

Am I Eligible to Refinance My Existing SMSF Loan?​​

To refinance an SMSF loan, you have to meet specific requirements. The application process can be quite strict and can include the following requirements & terms:

How does it work?

Refinancing an SMSF loan isn’t a quick and easy task. There is a range of things to consider before you apply such as eligibility criteria and the suitability of the loan for your funds’ investment needs.

The process for applying for an SMSF loan typically looks similar to the application process for your initial loan, with a few small variations. Some lenders may require that you have additional criteria fulfilled before being able to apply.

We usually recommend refinancing SMSF loans for those with existing SMSF home loans or commercial loans that are more than two years old. It can be a strategic option to pay off their initial loan faster and grow their super fund more quickly. With our own Australian financial services licence, we can deal with multiple lenders on behalf of our clients and help them compare different loan programs. If you’re considering refinancing an SMSF loan, we’re here to help you find a loan that matches your financial situation and your fund’s investment goals.

What to consider?

  • Look at the interest rate of your current SMSF loan and see if your fund will benefit from refinancing and getting a new loan with a lower interest rate.
  • You should expect a 4-6 week turnaround time from application to settlement.
  • The Australian Taxation Office or ATO states that you can’t increase the amount your fund is borrowing against the investment property when refinancing an SMSF loan.
  • Consider if switching to a new SMSF loan with a fixed or variable rate could help you save money.
  • Find out whether you could benefit from switching to a loan product with an interest-only repayment period to reduce your monthly repayment amount.

Why Refinance SMSF Loans?

SMSF refinancing offers two major benefits: a better interest rate & more appropriate SMSF features.

Better interest rate

With loan repayments, a lower interest rate can make a big difference. It can help your fund pay the loan faster or more consistently, avoiding defaults or other issues that may harm the fund and its members. You can get lower rates and even better loan terms when you decide to refinance your SMSF loan. 

Many SMSF trustees & members don’t realise that their SMSF home loan interest rate is higher than those for standard home loans. They might have gotten the loan despite the high loan rates because they didn’t have much choice back then. After all, not all banks and lenders were offering SMSF lending a few years back. But now, you have more options to find better loan products with lower rates, low loan application fee, a valuation fee and ongoing fees. That can give you more control over your SMSF investments.

More appropriate SMSF features

Is your self-managed superannuation fund using an offset account? If not, it’s worth considering refinancing an SMSF loan merely for the benefit of having an offset account. An offset account is connected to your SMSF mortgage or home loan. Funds in the offset account can directly lower the amount your fund owes for interest purposes. 

Say you have a refinanced loan balance of $500,000, and your offset account has $100,000. Your fund will be charged interest on $400,000 rather than the entire cost or loan balance. An offset account is an SMSF feature that not all trustees maximise. It’s also an everyday account, allowing you to deposit & withdraw money anytime. 

Want to know more about the benefits of refinancing SMSF property loans? Give us a call.

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