Refinancing An SMSF Loan

Can I apply for SMSF Loan Refinancing?

There are currently a handful of lenders that offer SMSF loan refinancing in the market. Most of them usually require you to satisfy a list of strict approval requirements, including:

• Up to 80% property value loan: You can only refinance your loan up to 80% of your property value.
• Residential property securities: Banks and lenders usually pick residential properties in metro suburbs and CBDs as your SMSF loan refinancing security.
• Commercial property securities: Besides standard residential properties, lenders might also consider standard commercial properties such as a warehouse, office apartment, or factory.
• Negotiable interest rates: Available in some banks and lenders for low-risk loanees and applicants
• Interest-only period: Also available for low-risk applicants and not for those approaching their retirement period.
• Loan refinancing term: You can get up to 30 years of the loan term for SMSF loan refinancing.
• Liquid assets: Some lenders have liquidity requirements which are roughly 10-20% of your property’s value in liquid assets after you settle the loan.

Most of the time, lenders will only refinance your SMSF loan via commercial lending, regardless if you need to refinance a residential property.

Because commercial loans are outside the National Consumer Credit Protection Act (NCCP) regulations, many banks/lenders charge at broadly varying interest rates.

Call our team at 1300 052 055 and talk with our SMSF mortgage brokers to know whether you can qualify to refinance your existing SMSF loan.

How will lenders evaluate my request/application?

Banks and lenders usually assess your existing SMSF depending on its current income by looking into its tax returns for the past two years.

After that, they will decide whether or not that income, added to the rental income, is large enough to qualify for a new loan.

That said, you must provide the required documents upfront to ensure a seamless evaluation. These documents include:

• Superannuation Fund trust deed
• Custodian trust deed
• SMSF yearly return worth two years of audit
• A letter of confirmation from the fund’s accountant stating that the trustee is not trading
• Financial reports for the past two years
• Income tax returns on all entities for the past two years
• Regulatory returns and SMSF income tax return

Liquidity requirements sample.

Suppose you have a property worth $700,000. In that case, your bank or lender may ask you to have about $200,00 worth of cash and liquid assets after computing the total cost of refinancing.

As a rule of thumb, liquid assets are funds or assets that you can access in a matter of days.

But some lenders will only require borrowers to maintain as low as $70,000 in their super fund. We at Plan A Mortgage know which lenders require massive or small liquidity limits.

For more questions about liquidity requirements and whether your liquid assets qualify for refinancing, contact us at 1300 052 055.

Are there fees for refinancing an SMSF loan?

Mortgage brokers can negotiate better interest rates for low-risk SMSF borrowers. However, most banks and lenders still incur fees to refinance your SMSF loan.

Since this type of lending is highly complex for most banks and lenders, only a select team per lender is designated to work on these trust structures.

The most common fees include:

• Loan Application Fee: New and refinance loan applicants will get charged the same application fees.
• Loan Exit Fees: Most banks and lenders charge a specific amount depending on your remaining loan balance.
• Valuation Fee: A professional valuer can evaluate your property, in which your lender or bank can impose charges for you to have your property.
• Settlement Fee: Before you pay out your existing SMSF loan, your lender can charge you settlement fees.
• Discharge Fee: Before releasing you from the loan, your lender can impose a discharge fee.
• Break Cost: Choosing to refinance your loan within a fixed period can incur break costs to your account.
• Government fees for property registration and transfer: Land Titles Office and concerned government agencies may impose mortgage registration fees to transfer the property owner’s name to the trustee.
• Ongoing Fees: These involve bookkeeping fees and annual fees that vary between banks/lenders.

How can I access my equity?

The Superannuation Industry (Supervision) Act of 1993 (SIS Act) states that borrowers cannot access nor release their equity from an SMSF refinance.

However, you can access some of it if you need to upkeep your property or do a few aesthetic renovations or cosmetic work.

For instance, you can spend $20,000 to renovate your old commercial property and tend to severe damages. In other words, you can access some of your equity to keep your property to market rent standard but not to improve it.

Is a fixed rate SMSF loan better than a variable rate?

Choosing over fixed rate or variable rate involves considering your long-term financial strategy and current stage of living.

Say you are currently 35 to 40 years old and living in a low-interest-rate environment, it would be best to opt for a fixed rate in 3-5 years. But suppose you are close to retiring with considerable liquid assets that you can capitalise on as your exit strategy. In that case, we suggest applying for variable rates.

If you’re not sure which interest rate to choose, we highly advise sitting down with us and discussing your options to refinance your existing SMSF loan.

How long will it take to refinance my SMSF loan?

More often than not, the process of refinancing SMSF loans can take about 4 to 6 weeks. That includes your first application for loan settlement.

The process can take a while since SMSF is a specialist sector of lending that typically involves more proof and documents than the standard residential loan. We suggest preparing accurate and updated financial documents upfront to speed up the process.

Besides, you need to speak with your accountant and ask for all the required documents and certified copies as needed.