Borrowing in an SMSF
Are you buying a property in your super fund?
The banks use different methods of assessing the borrowing power of your fund.
By changing your loan structure or applying with the right lender you can significantly increase your maximum loan size.
Which income types do banks assess?
The banks will assess your:
- Employer superannuation contributions.
- Additional voluntary contributions.
- Rent income on the new investment property.
- SMSF dividend income (conditions apply).
- SMSF interest income (conditions apply).
Some lenders will only accept 80% of all of the income in your fund, whereas others will use 100% of your income. All lenders assess only 80% of your rent income to allow for expenses such as management fees and repairs.
This is why there can be big differences between the maximum loans sizes offered by different banks.
How is dividend and interest income assessed?
If you are buying a property then you are going to need funds to pay for the deposit as well as costs such as stamp duty.
Many people use shares or other investment funds held in their SMSF as their deposit, therefore they no longer receive the dividends and interest income.
We can accept these income types only if there will be money or shares left in your SMSF after the property has been purchased.
Are my personal debts assessed?
If your employer contributions are sufficient to service the debt then in many cases we do not need to assess your personal financial position.
However if you need to make additional contributions to be able to make the repayments then we will need to complete a full assessment of your personal situation.
What are limited borrowing recourse arrangements?
Limited Borrowing Recourse Arrangements (LRBA) for self-managed superannuation funds (SMSFs) were given the green light by the Australian government as a way for SMSF trustees to borrow money to buy property.
The main benefit is that in the event that you default on your mortgage, you are liable to sell the single (or multiple) properties you purchased while the other assets in your SMSF are protected.
You can learn more no our What Is A Limited Recourse Loan? page.
What if I buy multiple properties?
You can buy as many properties as you like in your SMSF. To be precise, as many as you can afford!
The method of assessing existing investment property loans is complicated and so has been left out of this calculator. Our mortgage brokers can complete this assessment for you.
As a general rule most lenders will use an assessment rate which is 1.5% to 2.0% higher than the actual interest rate.
Some will assess your existing debts over the actual term using principal and interest repayments whereas others will use the actual repayments.
These differences mean that if your super fund already has investment properties then there can be vast differences between your borrowing capacity with different banks.
Do you need help with a SMSF mortgage?
Our mortgage brokers are experts in SMSF loans and know which lenders will best suit your needs.
Please call us on 1300 889 743 or enquire online and we will complete a serviceability calculation with several of our lenders to find out your maximum loan amount.