Am I eligible to refinance my SMSF Loan?
There are only a few lenders that will refinance an SMSF loan and you need to meet strict approval requirements:
- Borrow up to 80% of the property value: This means the entire cost to switch or refinance your loan must be no more than 80%.
- Standard residential property: Most lenders prefer standard properties in metro locations as security for your SMSF loan.
- Standard commercial property: Standard commercial properties like an office unit, a warehouse or a factory can also be considered.
- Negotiated interest rates: Available with select lenders and low-risk borrowers.
- Interest only: Available to low-risk borrowers (not borrowers nearing retirement).
- Loan term: 30-year loan terms available.
- Liquidity requirements: You typically need to have 10-20% of the property value in liquid assets after settlement but some lenders don’t have a liquidity requirement.
Many lenders will only approve SMSF loans or refinance applications through commercial and business lending, even if you are refinancing a residential property.
This means that each lender charges very different interest rates.
Please call us on 1300 889 743 or complete our free assessment form to discover if you are eligible to refinance your SMSF loan.
How will banks assess my application?
Typically, the banks will look at the current income of your self-managed superannuation fund (SMSF) based on the previous two years tax returns.
They will then determine whether that income plus the rental income will be sufficient enough for the new loan.
Providing the right documents upfront is essential for a smooth assessment so be sure you provide certified copies of:
- The SMSF trust deed.
- Custodian trust deed.
- The latest super fund statement prior to the establishment of your SMSF.
- The last 2 years audited SMSF annual returns.
- An accountant’s letter confirming the company trustee is not trading.
- The last 2 years financial reports.
- The last 2 years income tax returns on all related entities.
- Fund income tax and regulatory return.
Example of liquidity requirements
For a property valued at $700,000, some lenders may require you to have over $200,000 in cash, shares and other liquid assets after calculating the full costs of refinancing.
As a general rule, these are any assets or funds that you can access in three days.
However, some lenders may only require you to have as much as $70,000 left in your SMSF.
We know which lenders have less onerous liquidity benchmarks which is essential if you are still in the wealth creation phase.
Check out our page on liquidity requirements for SMSF loans to find out if your SMSF loan is eligible to be refinanced.
What are the costs of refinancing an SMSF loan?
Banks don’t really compete on price when it comes to refinancing an SMSF loan.
That’s because SMSF lending is a highly-specialised area for the banks and they only have very small teams that understand these complex trust structures.
However, if you are a low-risk borrower, we can negotiate discounted interest rates on your behalf.
You may even qualify for rates that are similar to investment loans.
Some of the costs of refinancing include:
- Loan application fee: Charged because you are applying for a new loan
- Exit fees: This may be a set charge or based on a percentage of the remaining loan balance.
- Valuation fee: Your lender may charge a fee to have your property valued by a professional property valuer.
- Settlement fee: Your lender may charge a fee to pay out your current SMSF loan.
- Discharge fee: A discharge fee is usually charged by a lender in order to release you from the mortgage.
- Break costs: You may incur a break cost if you refinance within a fixed term.
- Government fees to register and transfer the property: Your state’s Land Titles Office will charge a mortgage registration fee to register your mortgage in the name of the trust trustee.
- Ongoing fees: These fees will vary between lenders and can include monthly account-keeping fees and annual fees.
Can I get investment rates?
Over the past few years, many lenders have stopped approving new loans or refinances for self-managed super funds.
Those that do offer SMSF loan refinances now charge a margin above standard investment rates.
Where a mortgage broker can help in choosing a lender that can offer you a much more competitive interest rate based on your risk profile.
There can be significant differences in the margins that lenders charge for SMSF loans.
Can I access equity?
Under the Superannuation Industry (Supervision) Act 1993 (SIS Act), you cannot release equity as part of an SMSF refinance.
The only exception is for property upkeep and minor cosmetic work.
For example, if the property is 40 years old, you may need to spend $20,000 replacing old wooden floorboards, fixing a hole in the roof, replacing broken fixtures and fittings or tending to any other damage.
Specifically, these changes are not for property improvement but for bringing the home back up to market rent standard.
You will need to provide quotes for the work to be undertaken and the lender will typically control the release of these funds rather than simply release a lump sum from the property equity.
Should I choose a fixed or variable rate SMSF loan?
Deciding on a fixed or variable rate depends on your long-term strategy and stage of life.
If you are 30-35 years old in an historically-low interest rate environment, for instance, you may be better off fixing for 3-5 years.
If you are nearing retirement, but you have substantial liquid assets that you can sell as part of your exit strategy, consider choosing variable.
Ideally, you should sit down with a financial adviser to determine your goals for refinancing your SMSF loan.
How long will it take to refinance my SMSF loan?
You should expect a 4-6 week turn around time from application to settlement.
The reason is that this is a specialised area of lending which requires you to provide more documents than a standard home loan.
Golden tip: To reach settlement faster, provide correct and up-to-date financials upfront and in one go.
Your mortgage broker can help.
We may advise you to speak with your accountant so they can provide you with certified copies of your financial statements.
Find out if you qualify
Refinancing an SMSF loan is tougher than ever due to lending policy restrictions.
It’s essential that you speak with a mortgage broker that specialises in this area of credit.
Please call us on 1300 889 743 or complete our online enquiry form to discover if you qualify.