If you have an existing SMSF mortgage, there is a good chance that you are paying a significant premium.
Self-managed super funds (SMSFs) have become a mainstream retirement strategy. According to the Australian Taxation Office (ATO), there are over 661,000 SMSFs in Australia holding more than $1,034 billion in assets, with around 16.7% invested in property.
However, despite their popularity, many SMSF loans taken out to buy property a few years ago have not been reviewed and may now be costing trustees more than necessary.
SMSF property is often treated as a set-and-forget investment. The property is tenanted, repayments are automated and super statements arrive each quarter. Over time, interest rates on older loans have crept up, fees have stayed the same and features have not kept pace with newer products. This is even more true for lenders who have all but exited the SMSF lending market. These older products usually have very high interest rates, costing investors thousands of dollars extra a year.
Did you know that the major four banks – CBA, ANZ, NAB and Westpac – no longer offer retail SMSF investment loans?
As a result, many legacy SMSF loans are no longer competitive and are often two or three per cent higher than what a refinance could achieve. For some trustees, refinancing to a current product can deliver a meaningful reduction in their rate.
The “loyalty tax” on legacy SMSF loans
SMSF lending is a niche area. Not all banks and non-bank lenders operate in this space, and several that once did have reduced or closed their SMSF offerings.
As competition in the sector has declined, there is less incentive for older lenders to remain competitive. Without the threat of you taking your business elsewhere, these rates have quietly crept up.
While standard residential mortgages might fluctuate with the cash rate, these older SMSF products often carry a significant premium.
Why these loans often go unreviewed
Most SMSF trustees are diligent. They meet with their accountant, complete audits and stay across compliance. However, the loan itself often receives less attention, even though reviewing it is relatively straightforward. There are a few reasons for this:
Time pressure
If you are a busy professional and/or raising a family, your calendar is already full. A loan review slips down the list.
Difficulty
There is a perception that refinancing an SMSF loan is complicated. Spoiler alert: it is not.
The original setup can be complex and would have involved solicitors, bare trusts, custodian structures and detailed documentation. The assumption is that moving the loan to a new lender involves the same level of complexity and cost.
Set-and-forget mindset
If the property performs and the fund remains compliant, it is easy to assume the structure is fine. In some cases, it is also assumed that your accountant or adviser will do this loan review for you.
The benefits of refinancing an SMSF loan
The most obvious benefit is interest savings. Lower rates can improve cash flow inside the fund and increase net returns over time, ultimately growing your retirement savings.
There are other benefits too:
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Better alignment with your current SMSF strategy
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Updated loan features and structures
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Clear visibility on your fund’s borrowing position
What to check before you act
Not every SMSF loan is worth refinancing, so it's important to get the full picture before making any decisions. Here are a few things to include when conducting your loan review:
Your current rate
Check your latest loan statement or call your lender. Legacy rates can drift higher over time, and many borrowers are surprised by what they find.
Your remaining loan term and any break costs
Most SMSF loans are variable, so exit costs may not apply. Fixed-rate loans can incur break fees or exit charges if switched.
The cost of switching
Legal and establishment fees may apply. A broker with SMSF experience can calculate whether potential savings justify the outlay and estimate your break-even point.
Your fund's compliance
Any change to a limited recourse borrowing arrangement (LRBA) must comply with superannuation law. Working with a specialist brokerage like AXTON Finance, alongside your accountant, ensures the process is handled correctly.
How to refinance your SMSF loan
Refinancing an SMSF loan is similar to a standard mortgage, with a few additional compliance steps.
Step one: Review your current loan
Confirm your rate, term, fees and structure before approaching lenders.
Step two: Engage a broker with SMSF experience
SMSF loans are a niche area with lender-specific policies. A specialist broker, like AXTON Finance in Hawthorn, can quickly assess whether refinancing is viable, compare options and coordinate the process. This saves hours of research and reduces compliance risk.
Step three: Check your SMSF’s financial position
Lenders will assess the fund’s balance, liquidity, contribution history and rental income from the property. Strong cash flow and a healthy buffer inside the fund can support an application.
Step four: Get an updated valuation
The new lender will assess the property’s current value and loan-to-value ratio. If the property has grown in value, your position may improve.
Step five: Apply with a suitable lender
An experienced SMSF broker will know which lenders are currently active, which products are competitive and how to structure an application that meets the requirements of both the lender and the ATO.
Step six: Instruct a solicitor
Refinancing an LRBA does require some legal work. The bare trust structure that holds the property during the loan period needs to be correctly transferred to the new lender, and the documentation needs to satisfy both the lender's requirements and superannuation law.
Step seven: Complete the refinance
Once the new loan is approved and the legal work is complete, the new lender settles the loan and the existing lender is discharged. From that point, your fund is paying the new rate.
The cost of doing nothing
Not regularly reviewing your SMSF loans, even on properties that are performing well, can result in missed opportunities and overpaying on interest.
The good news is that the review itself does not need to take much of your time. For most clients with a straightforward existing LRBA, the process involves relatively little hands-on time. The bulk of the work is managed by your broker and solicitor, with your involvement limited to providing documentation, signing where required and approving the new loan terms.
If your SMSF holds property and you have not looked at your loan rate recently, now is a good time to do so. The market has moved, lenders have changed and there may be an opportunity sitting in your fund that is worth a closer look.
Is your SMSF loan costing you more than it should? Speak to AXTON Finance today to explore how refinancing could lower your rates, protect your fund’s cash flow and support long-term retirement growth. Call 03 9939 7576, email getabetterrate@axtonfinance.com.au or contact us today.