Many of the major lenders exited the self managed super funds (SMSF) lending space a few years back and, since then, may not have passed on Reserve Bank of Australia (RBA) rate reductions. Through having a "set and forget" approach to their SMSF lending, we regularly see prospective clients paying a considerable loyalty tax, some 1-2% higher than the market. SMSFs with loans coming to the end of the interest only periods also find the repayments have gone up considerably. SMSF Members are generally not reviewing these loans as often as they would their home loan.
SMSF loans are still a popular loan choice for self-managed super funds. Limited recourse borrowing arrangements (SMSF Loans) hit a record high of $55 billion, according to the latest ATO quarterly statistics report released in December 2020.
SMSF members are now benefiting from a historically low interest rate environment and a wider choice of lenders, many of which offer innovative SMSF products and excellent rates.
Most SMSF rates are now starting under 5 per cent, with some of the lowest residential rates around the 4 per cent mark and commercial rates from 4.4 per cent. Upfront and ongoing fees amongst the lenders vary considerably, so it is important to crunch the numbers and look beyond the headline interest rate when refinancing.
It is now a much more competitive space which creates a great opportunity for SMSFs to refinance. For example, an SMSF that refinances and saves 1 - 1.5 per cent on a $500,000 balance would have an extra $5,000 - 7,500 each year towards their retirement.
As with all things related to SMSF and superannuation, there are strict rules and guidelines. Therefore, it is vital to speak with your SMSF specialist broker, accountant, and financial planner when you embark on any changes within your fund. Regarding refinancing an SMSF loan, SMSF trustees should be aware they cannot borrow to improve the property, and they cannot get cash out or release equity.
Please reach out if you would like a review of your SMSF loan or a referral to an SMSF advice professional in my network.