An SMSF can obtain a loan to invest in a variety of investments such as shares or properties. Banks and lenders have tailored lending products for SMSF’s. Depending on the SMSF’s structure and the type of investments (commercial or residential properties), the loan to valuation ratio is typically ranging from a maximum of 65 –80%.
Fees and Charges
Fee is the one of the most conspicuous difference between an SMSF loan and a home loan. An SMSF loans are often viewed by lenders as commercial loans; therefore, commercial loan fees apply.
Interest Rate
Apart from establishment fees, the variable interest rate for an SMSF residential property loan is often about 100 basis points more than a discounted variable rate home loan. At the time of writing an SMSF property loan is approximately 5.70% whilst a home loan is 4.70%.
Liquidity Requirement
As a general overview, most lenders require 10% of total assets or 10% of total debts to be in liquid assets post settlement. For example, total value of the SMSF’s assets is $400,000 and total loan is $200,000 (estimated post settlement) in the Fund. The liquidity requirement would be $40,000 or $20,000 depending on the lender and their liquidity requirement. This is a protection also for SMSF Trustees/Members to ensure they can comfortably meet their loan repayments and other costs post settlement.
Redraw Facility
Another key difference is an SMSF cannot redraw against the property whereas most home loans enable you to redraw unused equity up to the loan to value caps offered by lenders. Extra repayments are generally fine on most variable rate SMSF loans. However, SMSF’s cannot redraw the extra funds it has paid generally, and it cannot then use that property as a security for another investment property later on.
Not all lenders offer SMSF loans
SMSF loans are a lending niche, and not all lenders offer these solutions. Further, some lenders have more appetite (and expertise) for certain deals than others. Certain Banks and Lenders might impose a requirement for Trustees to seek financial advice regarding borrowing in the SMSF.
Some lenders who offer SMSF loans lack processing capability to ensure the deal runs in a timely manner, which can result in additional fees and penalties. For more information on loans in super, please visit our SMSF loans page here.
Trustees are free to use any banks or lenders when arranging finance for your SMSF property purchase. To get the best deal possible, you’d be well advised to use a mortgage broker. You can use a big bank or one of the niche players like Macquarie who, by the way, have a very informative free brochure with some great examples. You can also download a cash flow analysis brochure here which gives examples on the cash flow details of an property with a limited recourse borrowing arrangement in place.
You can contact Steve Gilbert from Tradies Finance or Matt Atkinson from Condor Finance Partners for more information. Their contact details are noted below:
We as Mortgage Managers take a more hands on approach by crafting solutions tailored to individuals needs rather than simply selecting pre packaged options as brokers do. We specialise in SMSF and NDIS. We as Mortgage Managers find funds to back our own products that can produce a fit and solution that is specific for you and your goals.
This personalised approach allows for greater flexibility and the potential for more favourable outcomes, such as quicker loan repayment and an expedited path to retirement. By aligning the loan structure with specific goals and strategies, you’re aiming to not only facilitate a smoother lending experience but also to optimize financial outcomes for our clients.
SMSF Loans:
*All calculations are based on individual circumstances – your returns may vary. Consult with Steve to get and accurate calculation on returns.
NDIS Loans:
Inquiries to Steve Gilbert on 0412 209595 for a no obligation and no fee initial review, so we can place you with a specialist that suits your needs.
Trustees as managers of the Fund have a choice of which lender to deal with. This includes refinancing an existing SMSF loan. There are certain ATO requirements to be mindful of when Trustees refinance a loan. Firstly, the Bare Trust details might need to be updated in order to reflect the new lender. Secondly, the new lender might request for a change to be noted as the first mortgagee on title. Lastly, remember to advise your SMSF accountant about the lender’s update to be reflected in the records of the SMSF.
When refinancing an SMSF loan, some items below to be considered are as follows:
It is Trustee’s responsibility to ensure the SMSF loan adhere to the ATO rules and regulations. Please click the button here for more details on the ATO rules:
Have Questions?
Ask Superannuation Warehouse experts
Superannuation Warehouse is based in Melbourne and have clients throughout Australia. We deliver our SMSF administration services in an efficient and paperless way. This efficient service means a competitive fee to you. Our low ongoing fees will enable you to take control of your Super.
Superannuation Warehouse is an accounting firm and do not provide financial advice. All information provided has been prepared without taking into account any of the Trustees’ objectives, financial situation or needs. Because of that, Trustees are advised to consider their own circumstances before engaging our services.