How to refinance an SMSF loan
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If you’ve been looking around for a better deal on your SMSF loan, you may be wondering whether refinancing an SMSF loan is the same as refinancing a regular home loan. Unfortunately, the answer is no; refinancing an SMSF loan can be more complex and time-consuming than refinancing a normal home loan. Let’s discuss how refinancing an SMSF loan works, why you might refinance, things to consider, and more.
What is an SMSF loan?
Refinancing an SMSF loan is a different process than your typical refinancing loan because of how distinctly unique SMSF loans are. An SMSF home loan is a bit more complicated than the standard home loan;; it’s what's called a limited-recourse borrowing arrangement (LRBA).
Since your loan will be taken out by your SMSF and not yourself personally, an LRBA is used as a way to protect your SMSF and its assets. Should you be unable to repay your loan, your lender cannot seize any of your SMSF’s other assets to recoup their losses.
With this in mind, SMSF loans are more risky than home loans. If you’re unable to pay back your loan, your lender would stand to lose a lot more as they have no other assets to claim. Borrowing through your SMSF can also be risky, because if your fund runs into any financial or cashflow problems, you aren’t able to make personal contributions. All repayments must come directly from your SMSF. For this reason, applying for an SMSF loan can often be more complex, time-consuming, and expensive. You will likely need to pay a higher interest rate than your typical home loan.
How to refinance an SMSF loan
When it comes to actually refinancing your SMSF loan, there are a few things you will need to do before you apply. You will need to ensure you meet the eligibility criteria and that the loan is suitable for your funds' investment needs. The process will generally be pretty similar to applying for your initial SMSF loan, but some lenders may have additional criteria to be met, so it’s important to double check before you apply.
In addition to meeting the lending criteria, you will need to have a few supporting documents ready to supply with your application. This may include:
- SMSF tax returns
- SMSF trust deed
- Custodian trust deed
- Bank statements and/or audited financial statements
You should also consider speaking to a loans.com.au lending specialist. Our talented team can help you with the process of refinancing an SMSF loan or answer any questions you might have about the process.
Why refinance an SMSF loan?
You may choose to refinance your SMSF loan for the same reasons you have refinanced your home loan/s in the past. Whether you’ve seen a better interest rate floating around, an SMSF loan with features like an offset account or other attractive perks; refinancing can allow you to take advantage and potentially save yourself thousands of dollars.
What to consider when refinancing your SMSF loan
If you’re deciding whether an SMSF refinancing loan is right for you, there are a few things you might like to consider.
Costs of refinancing
Just like refinancing a normal home loan, refinancing an SMSF loan will cost you money. From the loan application fee to the valuation fee to the ongoing fees; there are a number of costs to consider before deciding whether refinancing ends up being more cost-effective than sticking it out in your current LRBA.
ATO requirements
According to the Australian Taxation Office (ATO), refinancing an SMSF loan must not increase the amount you’re borrowing against the property. You can generally borrow up to 80% of the property’s value, so the entire cost of refinancing must be lower than this.
Interest rates
You should look at whether your current interest rate is fixed or variable, as refinancing a fixed rate loan will likely see some hefty break fees incurred. This can make refinancing much more expensive, so you should weigh up whether it still ends up being worth it.
Compare and calculate
Compare both loans and see how they shape up next to each other. Consider things like how many years you have left on the loan, whether the benefits of refinancing will outweigh any costs, and whether you will be able to truly take advantage of any perks like an offset account.
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About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
