Why SMSF loan interest rates are higher, and what they are now

On a home loan the lender can pursue the borrower's other assets if the property sale leaves a shortfall. On an SMSF loan the lender can only take the property held in the bare trust. Personal guarantees from members soften this in practice, but the structure is still riskier for the lender, and lenders price for the scenario where the property falls in value and the fund cannot top up. That is also why LVRs are lower.

When the major banks offered SMSF loans, competition kept rates within half a point of home loans. Since they withdrew, the market is non-bank lenders that fund through warehouses and securitisation, which costs more than deposits. Some banks have re-entered cautiously for commercial SMSF lending. The result is a market where the best rate is often with a lender most borrowers have never heard of, and where rates move independently of the home loan market.

Every SMSF loan involves the lender's solicitor reviewing the fund deed, the bare trust deed, the trustee companies and the contract, and often requiring amendments. Fees are higher than a standard loan and establishment costs of several thousand dollars are common. Lenders recover some of this in rate on smaller loans, and many set minimum loan sizes of $100,000 to $200,000.

LVR under 70 per cent, a fund with a strong balance and contribution history, a standard residential property or a well-leased commercial one, and a corporate trustee structure that needs no fixing. Refinancing an old bank SMSF loan to a current non-bank product is the single most common saving, and comparing the whole SMSF lender panel rather than one or two is the way to find the sharpest rate at the time.