Like a regular home loan, you must regularly refinance your self-managed super fund loan. However, unlike a regular home loan, it can be a lot more complex to refinance a self-managed super fund loan.
Although it can be trickier, there are plenty of benefits, and with an Inovayt finance broker on your side, you can find a loan that suits you. In this blog, we will unpack what it means to refinance a self-managed super fund loan and how you can go about it.
What is a self-managed super fund loan, and can you refinance it?
A self-managed super fund (SMSF) is a super fund where you are the trustee and member and have control over the management investment strategy and administration. Having an SMSF loan is a form of investment loan and means you can use funds from your SMSF as a deposit and borrow the remaining amount to fund the purchase of an investment property that would have otherwise been financially out of reach.
While it is possible to refinance a self-managed super fund loan, these types of loans do have strict rules surrounding them and must be treated with care.
How to refinance a self-managed super fund loan
To take out a loan like this, it’s likely you enlisted the help of a legal professional to walk you through the specific structure required and ensure you met all relevant superannuation laws.
If it’s time for you to refinance your SMSF loan, the expert team at Inovayt has you covered. The structure of an SMSF loan is unique and complex and operates through a limited-resource borrowing arrangement (LRBA). As your loan is technically undertaken with you as the trustee, this arrangement is put in place if you can’t make your repayments. This way, the SMSF and its assets cannot be collateral for your investment. It is also why the process can be complicated.
When you’re ready to refinance a self-managed super fund loan, there are a few things you will need to do to ensure you meet the eligibility criteria and that the loan is suitable for your needs. Additionally, you may need to supply supporting documents with your application. These may include the following:
- SMSF tax returns
- SMSF trust deed
- Custodian trust deed
- Bank statements and/or audited financial statements
Why should you refinance a self-managed super fund loan?
Despite their complexities, the reasons for choosing to refinance a self-managed super fund aren’t too different to regular home loans. Refinancing is about sourcing a better interest rate or seeking ways to save money on the loan. With the unpredictability of the property market and the rapidly changing landscape, different SMSF loans offer various features, such as low or no-fee offerings or the ability to repay the loan early without penalty.
What to consider when refinancing your SMSF loan
When it comes time to refinance your SMSF loan, you need to consider a few crucial things.
Costs of refinancing
Like regular home loan refinancing, fees may be involved when refinancing an SMSF loan. These can include loan application fees, valuation fees and ongoing fees, so it’s worth chatting with your Inovayt broker to see if it’s worth refinancing or sticking it out with your current LRBA.
The Australian Taxation Office (ATO) states that to refinance an SMSF loan, you must not increase the amount you’re borrowing against the property. Generally, you can borrow up to 80 per cent of the property’s value, so the cost of refinancing must be lower than this.
Before refinancing, check if your current loan is on a fixed or variable rate. Refinancing a fixed-rate loan can incur significant break fees to exit the agreement, making refinancing a lot more expensive.
Eligibility requirements to refinance a self-managed super fund loan
Not everyone is eligible to refinance their SMSF loan, so it’s important to check with a professional – like an Inovayt broker – to save yourself time and potentially money when trying to refinance. Eligibility varies from lender to lender but generally includes the following:
Loan-to-value ratio (LVR)
When it comes to refinancing, your loan-to-value ratio (LVR) will generally need to be under a certain amount. For many lenders, this is typically 80 per cent, but for SMSF refinancing, it’s common for this to be 70 per cent. Also, if the property has changed in value, this could impact the LVR. It’s important to remember that the entire refinance cost is factored into the loan amount, which can affect your LVR.
Regarding liquidity requirements, every lender differs, and before approving an SMSF loan, each lender will set a benchmark. The application may not meet the lending criteria if you don’t have enough liquid assets left in your SMSF after adding in refinancing costs.
Loan terms and amounts
Again, loan terms will vary depending on your lender, but they generally need to be between 15 and 30 years. Regarding the loan amount, the amount you apply to refinance your existing SMSF loan can’t be over or under your current SMSF amount.
Loan requirements for SMSF loans can vary, but it’s common for lenders to only offer refinancing on SMSF loans that are more than 12 months old. It’s also common for them to look solely at loans with six months’ on-time repayments.
When it comes to refinancing an SMSF loan, there are a few property requirements that lenders take into consideration. While each has its own criteria, they tend to have their own preferences around residential vs. commercial property types (e.g., warehouse, factory, office, unit) and location (regional vs. metro).
How can an Inovayt mortgage broker help refinance a self-managed super fund loan?
When it comes to refinancing a self-managed super fund loan, our expert team of mortgage brokers at Inovayt is equipped with the knowledge and experience to deal with the complexities involved in this process. If you’re looking to refinance your SMSF loan, get in touch with our specialist mortgage team today to get the ball rolling.