September 7, 2017
More Australians are starting to use a self-managed super fund to purchase a property. By 2011, four years after SMSF home loans were first allowed, more than one in ten SMSFs had invested in property. An SMSF mortgage can also be used to buy residential property.
As with other types of home loans, you can refinance your SMSF home loan to take advantage of some of the common benefits of refinancing like lowering your interest rate or managing lower repayments. However, there are some unique characteristics of SMSF loans and related tax laws that you should be aware of.
The primary reason you may want to refinance is the same reason homebuyers and property investors would switch to a new loan in general – to get a better deal. For example, if interest rates have gone down since you took out your loan, you may be able to change to a new, similar loan with a better rate. This could lead to thousands of dollars in savings over the life of a loan.
Looking for a better rate isn’t the only reason. You could also save by refinancing to a loan with flexible features like unlimited early repayments and a free offset account.
SMSF home loans are complex. When you first took out your loan, you likely sought the guidance of your financial advisor. You’ll want to seek professional help again this time around to ensure you are successfully managing your super fund and property investment.
The Australian Taxation Office also has specific rules for borrowing with an SMSF. For example, you can’t use the loan to make renovations on your property. With an SMSF, when you refinance you can’t increase how much you are borrowing against the current property.
Also, a bank won’t be able to claim other assets in the super fund if you go into default. Because of this, in some cases, your lender may require personal guarantees from individual members of the fund.
How much will you benefit from refinancing your home loan? Take a look at the costs involved. There may be more fees and charges than you expect simply because SMSF loans are more dynamic. Also, consider the time it will take and the legal requirements that will have to be met. Discuss your unique financial objectives and your situation with an advisor who specialises in SMSFs.
You’ll also want to explore your options. Not all banks even offer SMSF loans so you won’t have as many options when you refinance as you would with a traditional mortgage. To some lenders, SMSF loans are more work, which means they can cost more to establish and are therefore riskier. On the other hand, there are lenders out there that will offer competitive SMSF loan products. If you’re having trouble uncovering the best refinancing deals for your situation, a mortgage specialist can help.
With professional guidance and a clear idea of how much you’ll benefit, you know you are making your SMSF refinancing experience worth the effort.
Written by Refinancing.com.au
Refinancing.com.au is an end-to-end service that helps people refinance their home loan. We empower you to search for your home loan, and choose the process that suits you.
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