What is an SMSF Loan?

A SMSF loan is a unique loan product only offered to self-managed super funds for the purpose of investment. Similar to all home loans, SMSF loans are used to purchase either residential property, commercial property or another single acquirable asset. The returns on your investment – whether through capital gains or rental income – are returned to the super fund, which can increase your retirement fund.

It is important to understand that all investments should be in the best interest of the fund and must adhere to the laws and policies surrounding SMSF loans. Therefore, we advise clients to choose a property that will not only provide a regular income stream but potential capital gains.

What are SMSF Home Loan Lending Rules?

It is important to know that standard home loans cannot be drawn from SMSF as the law limits the lender from taking a recourse against the other assets when you default on the SMSF loan. The SMSF lender will need to sell the property as a result of this, however, the SMSF lender cannot file any claims against your other trust assets because the SMSF loan is secured against the residential property.

●Due to regular government changes to the rules around superannuation and SMSF in particular, always work with an experienced SMSF broker if you intend to apply for a SMSF loan.

What are the benefits of SMSF?

When an SMSF is setup correctly with the right lending structure there are many advantages, including:

●More control over your investments.

●Access to wider investment options like property.

●Greater tax incentives.

●The opportunity to maximise returns so that you can reach your retirement goals faster.

●Lower superannuation administration fees.

Please note:

●SMSF holds a beneficial interest in the property

●Any money received will be funnelled back to the fund

●The security trust holds the legal title

●The lender has restricted recourse only to the mortgaged property

●The legal title is transferred to the SMSF when the property has been totally paid off

What to consider before borrowing:

●SMSF requires sufficient assets to cover the associated risks such as interest rate volatility or a decrease in the value of the property. 

●It is the trustee’s responsibility to ensure that the lending strategy is appropriate  and meets the Sole Purpose Test

● The SMSF must meet all lending requirements and criteria

●Your loan can be subjected to refinance should there be any changes made to  banking or SMSF legislation (please note: a refinance could mean a rise in interest rate)

●Stamp Duty may apply, which might reduce your available funds to offer as security

Commonly Asked Questions around SMSF Lending strategies:

How much can my SMSF borrow?

The amount you can borrow depends on whether you are looking to purchase residential or commercial property.

●Standard SMSF residential investment loans typically offer up to 80% of the property value.

●If you’re looking to purchase commercial property, most lenders will allow you to borrow up to 75% for properties that are non-specialised.

Is an offset account right for my SMSF?

SMSF Loan Experts will help you decide whether using an Offset facility should form part of your lending strategy. 

●Offset Accounts can act as a type of savings account that helps to reduce your interest payments. 

●It is linked to your loan account and can have the monthly mortgage repayments debited from it. 

●The interest payable on your loan is calculated by subtracting the balance of your offset account from your loan balance — meaning you pay interest on a lower amount. 

●An Offset Account can help keep cash available for future investments.

What are serviceability tests?

Similar to personal home loans, lenders for SMSF loans will assess whether you can service the loan repayments prior to accepting your loan application. The property’s rental income will form part of your serviceability test. 

Everyone has different circumstances so let us help you with strategies to increase your borrowing capacity.