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An SMSF home loan is a loan that trustees of a self-managed super fund (SMSF) use in order to buy an investment property. Any returns on the investment property such as rental income or capital gains are then fed back into the SMSF to boost your retirement savings.
The investment property can’t be acquired from, lived in, or rented out to an SMSF fund member or their related parties (except for some limited circumstances).
Getting an investment loan with your SMSF is a little more complex than getting a regular investment loan outside an SMSF. Here are five top things you need to know about getting an investment loan with your SMSF.
1. The loan must be properly structured
There can be severe fines of over $200,000 for trustees if the SMSF loan application is not compliant or properly structured. This is why it is strongly recommended to seek out the help of an accountant and a mortgage broker or financial adviser who is experienced with SMSF loans to help with the setup and guide you through the application process.
2. Refinances of existing SMSF loans are only available through limited lenders
In Australia, there are few lenders who offer SMSF home loans which narrows down the number of potential lenders you can refinance with. This can also make refinancing more expensive. However, the SMSF loan market has grown in recent years and competition among lenders has begun to increase. At loans.com.au we offer some of the lowest rate SMSF loans in the market and are here to help you refinance your SMSF so you can start saving thousands.
3. Loan repayments come from your SMSF
Your investment loan repayments must come from your SMSF, so your fund always must have sufficient liquidity or cash flow in order to meet the repayments.
Because of this, it’s generally recommended to have at least $150,000 minimum in assets in the SMSF and to keep the fund topped up with cash from super contributions and potential rent on the investment property in order to cover the repayments, as well as stamp duty and any other ongoing fees and costs.
4. SMSF loans must be undertaken through a limited recourse borrowing arrangement (LRBA)
All SMSF loans have to be undertaken through what’s known as a limited recourse borrowing arrangement (LRBA). This means that in order to limit the recourse of the lender, a separate trust and trustee need to be set up to minimise the risk to other assets in the fund.
In other words, if the SMSF can’t make any more repayments on the loan and it falls into arrears, the lender will recover its losses by seizing the assets. But because the property is in a separate trust to the SMSF this means the lender (generally) can’t pursue the assets in the SMSF and the assets are protected from being repossessed by the lender.
5. SMSF loans can be harder to cancel
SMSF property loans can’t be as easily unwound if the need arises, particularly if the loan or documents/contract hasn’t been properly set up. This could mean being forced to sell the property at a loss to the fund.
For more information on our low SMSF refinance rates, visit loans.com.au today.
Marie Mortimer is Managing Director of loans.com.au, one of Australia's largest online lenders. Since Marie started the business 10 years ago, Marie has grown loans.com.au into a company with $6 billion worth of home and car loans. Marie is dedicated to improving financial literacy for all Australians and is passionate about the FinTech industry in Australia. When she isn't at work, she loves to spend time with her husband and two young children.
loans.com.au is an online lender for home and car loans. For 10 years, Aussies have trusted the locally based loans.com.au team to support them with low home loan and car loan rates, approved quickly through the online loans.com.au app.
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