How SMSF Refinancing Works and Why It Could Benefit Your Fund

Why Refinance an SMSF Loan?

Refinancing an SMSF loan can offer several advantages that can improve your fund's financial flexibility and potentially save you money. As an SMSF trustee, you can periodically review your loan terms to ensure they align with your current financial situation and long-term goals.

While SMSF refinancing may seem straightforward, it can open the door to several benefits worth considering. Whether your goal is to lower costs, access additional capital, or restructure your SMSF's property portfolio, refinancing can help you meet those objectives.

Here are some of the main reasons trustees choose to refinance their SMSF loans:

• Lower interest rates: Refinancing allows you to secure a loan at a lower interest rate, reducing the overall cost of the loan and lowering monthly repayments.
• Better loan features: You may be able to negotiate better loan terms, such as flexible repayment schedules, interest-only periods, or even an offset account to improve cash flow management.
• Switching lenders: If your current lender no longer offers favourable terms or doesn't align with your SMSF's investment strategy, refinancing allows you to move to a more suitable lender with better options.
• Unlock equity: If the value of the property held in your SMSF has appreciated, refinancing can unlock that equity. This could provide additional funds to invest in other assets within the SMSF or pay off other liabilities.
• Refinance balloon payments: If your loan includes a large payment at the end of its term (often called a balloon payment), refinancing can extend the loan term, spreading that large payment across smaller, more manageable payments.

At Stryve Finance, we help SMSF trustees assess these opportunities to ensure that the decision to refinance aligns with the fund's long-term goals and complies with all SMSF lending rules.

How SMSF Refinancing Works: Step-by-Step

Refinancing an SMSF loan involves several key steps. The process requires careful attention to ensure that all requirements are met, and compliance with the Superannuation Industry (Supervision) Act 1993 (SIS Act) is maintained. Here's a step-by-step guide to how SMSF refinancing works:

1. Review Your SMSF Trust Deed and Investment Strategy

Before beginning the refinancing process, it's important to review your SMSF's trust deed and investment strategy. Ensure that refinancing aligns with the trust's objectives and is permitted under the current deed. If your trust deed does not permit refinancing, it may need to be amended. Additionally, ensure that your investment strategy supports the decision to refinance, particularly if you plan to use the funds for other property investments within the SMSF.

2. Obtain a Property Valuation

To refinance your SMSF loan, you'll need to obtain an independent property valuation. This is critical because the property's value influences the loan-to-value ratio (LVR) and determines whether the property qualifies for refinancing. The valuation should be recent (within 3-6 months) and completed by a qualified professional.

3. Assess Your SMSF's Financial Position

Your lender will require an in-depth look at your SMSF's financial position. This includes:

• SMSF cash flow: rental income and contributions.
• SMSF tax returns and audit reports: lenders will assess the fund's financial health over the past few years.
• Loan repayment history: a clean repayment record is essential for a successful refinance.

At Stryve Finance, we assist with gathering and presenting these financial documents to lenders, ensuring your SMSF is in the best possible shape to secure refinancing.

4. Find a Suitable SMSF Lender

Not all lenders offer SMSF loan products, so it's essential to work with a broker who can help identify suitable lenders. The lender you choose must offer limited-recourse lending and be familiar with SMSF regulations. Stryve Finance works with a network of trusted SMSF lenders to compare rates and terms, ensuring you find the best deal for your situation.

5. Apply for the New Loan

Once you've found the right lender, you'll need to apply. This includes providing all necessary documentation:

• SMSF financial statements
• Independent property valuation
• Loan application forms
• Identification of the trustees
• Compliance documents

At Stryve Finance, we assist with the application process, ensuring all required documentation is in place for a smooth, timely approval.

6. Settle the New Loan and Discharge the Old

Once your new loan is approved, the lender will settle the loan by paying off the old loan in full. This step effectively discharges the old loan and replaces it with the new refinanced loan. It's crucial to ensure that the bare trust and custodian trust structures are maintained or updated as needed to reflect the change in the loan terms.

7. Update Loan and Trust Documents

After the loan is settled, you may need to update the loan agreement, trust deed, and other SMSF documentation to reflect the changes. This ensures that the new loan continues to comply with SMSF requirements.

8. Maintain SMSF Compliance and Audit Readiness

Finally, it's important to keep your SMSF compliant with the SIS Act. Ensure that all refinancing actions are documented and that the new loan remains a limited-recourse loan. Additionally, prepare your SMSF for its annual audit by keeping the relevant documents up to date and accessible to your auditor.

At Stryve Finance, we help guide you through each of these steps, ensuring that refinancing is completed smoothly and in compliance with SMSF rules.

What Does SMSF Refinancing Cost?

When refinancing your SMSF loan, it's essential to understand the costs involved. While refinancing can offer long-term savings, the upfront costs can add up. Being aware of these costs in advance will help you make an informed decision about whether refinancing is the right option for your SMSF.

Here's a breakdown of the typical costs associated with SMSF refinancing:

1. Property Valuation

Lenders require a property valuation to assess the property's current market value. This ensures the loan-to-value ratio (LVR) meets the lender's requirements. Depending on the property's size and location, valuations can range from $300 to $800.

2. Legal and Solicitor Fees

Both the old lender and the new lender may require legal work for the refinancing process. Legal fees typically cover:

• Reviewing loan contracts
• Ensuring the bare trust documents are compliant
• Drafting any changes to the trust deed

These fees can vary but generally range from $1,000 to $2,500.

3. Discharge Fees (Old Loan)

If you're paying off an existing SMSF loan, your current lender may charge a discharge fee to close the loan. This fee can range from $250 to $500, depending on the lender.

4. Application Fees for the New Loan

When applying for a new SMSF loan, some lenders charge an application fee to process your refinancing request. These fees typically range from $500 to $1,000, though some lenders may waive these fees as part of a promotional offer.

5. Trust Deed Update Costs

Refinancing may require updates to the SMSF trust deed or bare trust documents to reflect the changes in the loan structure. This could involve $500 to $1,500 in fees, depending on your SMSF's complexity and whether you need to engage a lawyer to make the necessary amendments.

6. Government Charges (If Applicable)

In some cases, refinancing could trigger stamp duty or other government charges. However, in most cases, if the SMSF's structure doesn't change, there are no stamp duty implications for refinancing. It's important to work with a professional like Stryve Finance to ensure all aspects of your refinancing are structured to avoid unnecessary costs.

Tip: Always ask your broker for a detailed cost breakdown before starting the refinance process. At Stryve Finance, we provide transparent cost estimates to help you plan.

SMSF Lending Rules You MUST Follow

Refinancing an SMSF loan involves more than just securing a better interest rate or extending the loan term. The entire refinancing process must comply with superannuation laws to ensure the ongoing validity and tax advantages of your SMSF. Failure to follow the Superannuation Industry (Supervision) Act 1993 (SIS Act) can result in penalties, tax implications, or even the disqualification of your SMSF.

Here are the key SMSF lending rules you need to follow when refinancing your loan:

1. Limited Recourse Borrowing Arrangement (LRBA)

The loan must remain under the Limited Recourse Borrowing Arrangement (LRBA). This means that the lender's ability to claim the property in the event of default is limited to the property itself, they cannot claim other assets from the SMSF. This is a crucial feature of SMSF loans and cannot be altered during refinancing.

At Stryve Finance, we ensure your refinancing deal adheres to this rule so your SMSF remains fully compliant with regulatory requirements.

2. The Property Must Be Held in a Bare Trust

When refinancing, the property must remain held in a bare trust, where the trustee holds legal title to the property on behalf of the SMSF. The SMSF trustees are the beneficial owners, and a custodian trustee manages the bare trust. This structure ensures that the property remains compliant with SMSF laws and protects your fund's assets.

If your current bare trust documentation needs to be updated to reflect the new loan, Stryve Finance can guide you through the necessary changes.

3. No Personal Benefit

Under SMSF regulations, you cannot use the property for personal purposes. This includes using the property for family holidays, renting it out to family members, or any other personal use. Refinancing should not result in a scenario where personal use or benefits arise from the property.

At Stryve Finance, we help ensure your refinancing plan aligns with the sole purpose test, meaning the property is used solely to generate income or capital growth for your SMSF.

4. Compliance with NALI Rules (Non-Arm's Length Income)

Refinancing an SMSF loan with related parties or entering into a loan agreement that doesn't reflect market rates could trigger Non-Arm's Length Income (NALI) issues. If the refinancing deal is not structured at arm's length (i.e., not on commercial terms), any income derived from the loan or property could be taxed at a higher rate.

We ensure that Stryve Finance always recommends refinancing options that avoid non-arm's length transactions, helping your SMSF maintain its tax-effective status.

5. Ongoing Compliance and Record-Keeping

It's important to keep accurate, up-to-date records for your SMSF, primarily when refinancing a property loan. You will need to provide detailed documentation for your annual SMSF audit, and your auditor will review the refinancing process to ensure it complies with all legal and regulatory requirements.

Stryve Finance works closely with your SMSF accountant and auditor to ensure that all refinancing paperwork is complete, compliant, and ready for audit.

Key Takeaway:
Refinancing an SMSF loan involves strict rules designed to protect your superannuation fund. Non-compliance with any of these rules can lead to costly penalties or the disqualification of your SMSF. That's why working with an experienced SMSF mortgage broker like Stryve Finance ensures that all aspects of the refinance are legally sound and structured to your benefit.

When Refinancing Might Not Be Worth It

While refinancing your SMSF loan can be beneficial, there are situations where it may not be the best choice. Here are scenarios where refinancing might not be worth it:

1. High Upfront Costs: Refinancing involves several fees (valuation, legal, application, and discharge). If the savings from refinancing are smaller than the costs, it may not make sense.

2. Low Remaining Loan Balance: If the loan balance is low, refinancing fees may outweigh any interest savings, making it more cost-effective to continue with the current loan.

3. Declining Property Value: If the property value has dropped, refinancing may result in a higher loan-to-value ratio (LVR), potentially leading to higher costs or being unable to access equity.

4. SMSF Liquidity Concerns: If your SMSF is struggling with cash flow, refinancing may only provide temporary relief. Ensure your fund can cover the long-term financial commitments after refinancing.

5. Approaching Pension Phase: If your SMSF is nearing the pension phase, refinancing could increase exposure to risks such as rising interest rates or fluctuations in rental income, which may not align with your retirement goals.

Key Takeaway:
Refinancing isn't always the best solution. At Stryve Finance, we help assess whether it aligns with your SMSF's financial situation and long-term goals.

Why Use a Mortgage Broker for SMSF Refinance?

Refinancing an SMSF loan can be complex, with strict regulations and a range of lender requirements to navigate. That's where Stryve Finance comes in. As a mortgage broker specialising in SMSF loans, we can help guide you through the refinancing process, ensuring that you secure the best terms while maintaining full compliance with superannuation laws.

Here's why working with an SMSF mortgage broker is beneficial:

1. Access to a Wide Range of Lenders: We work with multiple lenders specialising in SMSF loans, ensuring you have access to competitive rates and the best loan options for your SMSF.

2. Compliance Expertise: SMSF refinancing involves strict compliance with the Superannuation Industry (Supervision) Act 1993 (SIS Act). At Stryve Finance, we ensure your refinancing process meets all legal requirements, protecting your SMSF from potential penalties.

3. Save Time and Effort: Refinancing an SMSF loan requires extensive paperwork and coordination among multiple parties. We handle the paperwork, liaise with the lender, and ensure that all requirements are met, saving you time and stress.

4. Tailored Advice: Each SMSF is unique. We provide personalised advice based on your SMSF's specific needs and goals, helping you make the best decision for your retirement strategy.

5. Ongoing Support: Refinancing is just one part of your broader SMSF strategy. As your SMSF mortgage broker, we offer ongoing support and advice to ensure that your SMSF continues to grow and meet your financial objectives.

Working with Stryve Finance ensures that your SMSF refinance is smooth, compliant, and aligned with your long-term goals. Let us take care of the details so you can focus on your future.

FAQs: SMSF Refinancing in Australia

Here are some common questions trustees have when considering SMSF refinancing:

Can I refinance my SMSF loan to a different lender?

Yes, you can refinance your SMSF loan with a different lender, provided the new loan complies with the limited recourse borrowing rules and meets SMSF compliance requirements. It's important to ensure the new lender understands SMSF regulations.

Will I pay stamp duty when refinancing?

Typically, stamp duty is not applicable when refinancing an SMSF property loan, provided the SMSF structure and property ownership don't change. However, legal advice should be sought to ensure compliance.

Can I access equity to buy another property?

Yes, refinancing can allow you to access equity in the property held by your SMSF, provided it aligns with your SMSF's investment strategy. However, the equity can only be used further to benefit the fund, not for personal use.

Do I need to update the bare trust?

If refinancing involves changes to the loan structure or terms, your bare trust will likely need to be updated. The trust holds the legal title of the property on behalf of the SMSF, so any loan changes should be reflected in the trust documentation.

How long does SMSF refinancing take?

On average, refinancing an SMSF loan can take 4 to 8 weeks, depending on the lender's processing times, property valuation, and loan complexity. Working with a mortgage broker like Stryve Finance can help streamline the process.

Key Takeaway:
SMSF refinancing can be straightforward when you understand the process and have the proper support. If you have more questions or want to get started with your SMSF refinance, Stryve Finance is here to assist every step of the way.

Final Thoughts

Refinancing an SMSF loan is a powerful strategy that can help you secure better loan terms, lower your repayments, or access additional funds for further investments. However, it's crucial to ensure that the process is done correctly, in full compliance with Australian superannuation laws, and in line with your SMSF's long-term goals.

With Stryve Finance, you have a trusted partner who specialises in SMSF lending and can guide you through every step of the refinancing process. From assessing your current loan to securing the best refinancing terms and ensuring legal compliance, we are here to help you make the right decision for your SMSF.

Ready to Refinance Your SMSF Loan?

If you're considering refinancing your SMSF property loan, it's essential to work with a knowledgeable mortgage broker who understands the complexities of SMSF regulations. Stryve Finance offers expert advice, a wide range of lender options, and personalised support throughout the refinancing process.

Book a free consultation today to explore your SMSF refinancing options and secure the best deal for your fund.