Can I refinance an SMSF property loan?

The major banks stopped writing new SMSF loans some years ago and have been repricing their remaining books upward. Funds on those loans are often paying well above what specialist non-bank lenders now charge. A refinance of a $500,000 SMSF loan that cuts the rate by 1.5 percentage points saves the fund $7,500 a year, which goes straight to retirement savings. Funds also refinance to move from principal and interest to interest only, or to a lender with an offset facility, where the rules permit.

The trust deed and any updates, the bare trust deed, the trustee company documents, the fund's last two years of financial statements and audit, the current loan statements, the lease and rental statements for the property, and member details. The lender will value the property and assess the fund's ability to service the loan from rent and contributions, with the same liquidity expectations as a new loan. Personal guarantees from members are standard.

The refinanced loan cannot exceed the balance of the loan being replaced plus reasonable refinancing costs. The property cannot be substituted. The fund cannot draw additional funds for renovation or any other purpose. If the original loan was structured incorrectly, for example without a proper bare trust, the new lender will require it to be fixed first. And a fund whose members are near or above the $3 million balance threshold for the additional Division 296 tax will want advice on whether continuing to hold the property in super still suits.

Establishment and legal fees at the new lender, discharge fees at the old one, valuation, and the fund's own legal review. On a modest loan the saving covers these within a year. On a small loan below $200,000 the fees can outweigh the benefit, and some lenders have minimum loan sizes.