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SMSF LOAN FAQ

 

[/vc_column_text][/vc_column][/vc_row][vc_row heading_color=”” section_type=”fullwidth-background” flex_height=”” section_full_height=”no” bg_type=”” bg_image_type=”” pattern_overlay=”” color_overlay=”” opacity_overlay=”10″ header_feature=”” footer_feature=”” desktop_visibility=”” tablet_visibility=”” tablet_sm_visibility=”” mobile_visibility=””][vc_column width=”1/1″ desktop_hide=”” tablet_width=”” tablet_sm_width=”” mobile_width=””][vc_accordion disable_keyboard=”” toggle=”yes” initial_state=”none”][vc_accordion_tab title=”Can I borrow to invest in property?”][vc_column_text animation_delay=”200″]Yes, you can borrow to invest in property.o.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”What type of property can my SMSF buy?”][vc_column_text animation_delay=”200″]You can purchase either residential or commercial property within your SMSF. Your SMSF Trust Deed will state your borrowing powers and you investment strategy should reflect that you are borrowing to invest in property. Your investment strategy should be updated regularly.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”Is an SMSF Loan the same as my home loan?”][vc_column_text animation_delay=”200″]No, SMSF Loans are not like a home loan or investment loans. SMSFs are a ‘Trust’ and in order to purchase property with a SMSF, a “Limited Recourse Borrowing Arrangement” is required.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”What is a Limited Recourse Borrowing Arrangement?”][vc_column_text animation_delay=”200″]A Limited Recourse Borrowing Arrangement (“LRBA”) is a unique loan structure where the only SMSF asset that the lender (or any other party) has recourse to is the property that was purchased using the loan, if the fund is unable to meet its loan repayments.

A LRBA requires a security trustee (“bare trustee”) to beneficially hold the asset on behalf of the SMSF. The ‘bare trust’ arrangement recognises that the asset is to be held by the security trust until the debt is repaid, at which point legal ownership can pass to the SMSF.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”Can I use bare trust for multiple properties?”][vc_column_text animation_delay=”200″]No, a LRBA can be used to purchase a ‘single acquirable asset’. Therefore, each property requires a separate bare trust.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”When should my Bare Trust be executed?”][vc_column_text animation_delay=”200″]Generally before the contract of sale is signed. In certain states such as Queensland, the bare trust is required to be executed before the contract of sale is signed. Further, if you are using a corporate trustee, the bare trustee company will generally be included on the contract of sale. Therefore the bare trustee company should be incorporated before the contract of sale is signed.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”How much does a Bare Trust cost?”][vc_column_text animation_delay=”200″]Redwood Advisory provides a specialist bare trust service for a fixed fee of $1925. Read more in relation to bare trust.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”How long does it take to set up an SMSF?”][vc_column_text animation_delay=”200″]Once an application is received by Redwood Advisory, your SMSF will be set up in one business day.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”How long does it take to set up a bare trust?”][vc_column_text animation_delay=”200″]Once an application is received by Redwood Advisory, your SMSF will be set up in one business day.
[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”Can my SMSF loan be used for multiple properties?”][vc_column_text animation_delay=”200″]No, under the ‘single acquirable asset’ principle, each property requires a separate bare trust and separate loan.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”Why do I need a Limited Recourse Borrowing Arrangement?”][vc_column_text animation_delay=”200″]As a general rule, a SMSF cannot borrow. However, in 2007, S67A of Superannuation Law was introduced to allow borrowing in limited circumstances and specifies a number of requirements to be met to ensure compliance with Superannuation Law. This included the ‘single acquirable asset’ requirement and ‘limited recourse’ loan.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”Will the bank require a personal guarantee?”][vc_column_text animation_delay=”200″]Yes, to our knowledge all lenders with a SMSF product require a personal guarantee.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”Should I have a corporate trustee or individual trustee?”][vc_column_text animation_delay=”200″]Loan to Value Ratios will differ for individual and corporate trustees. For flexibility and asset protection, a corporate trustee is preferred. Further, certain lenders will lower the LVR for individual trustees, i.e. from 80% max lowered to 72% max.

Redwood Advisory recommends a conversion to corporate trustee prior to purchasing property in a SMSF. Read more[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”How much can I borrow to purchase residential SMSF property? “][vc_column_text animation_delay=”200”]The maximum LVR for residential property is 80%. For example, if I buy a property for $400,000, your maximum loan amount is $320,000. Therefore, you will require $80,000 in SMSF cash to complete a purchase plus acquisition and loan costs. [/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”How much can I borrow to purchase commercial SMSF property? “][vc_column_text animation_delay=”200″]The maximum LVR for commercial property is 70%. For example, if I buy a property for $400,000, your maximum loan amount is $280,000. Therefore, you will require $120,000 in SMSF cash to complete a purchase plus acquisition and loan costs. [/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”What is the cheapest SMSF Loan interest rate?”][vc_column_text animation_delay=”200″]Generally, interest rates for SMSF loans are more expensive than standard home loans and investment loans. An SMSF is a Trust, and requires a “limited recourse” loan and therefore lenders generally offer a loan at a higher rate than standard home or investment loans. Refer to our SMSF Rates Matrix for detailed information on current SMSF Loan interest rates.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”Does every lender offer a SMSF Loan?”][vc_column_text animation_delay=”200″]No. A number of lenders have recently exited the SMSF Loan market including NAB, AMP and The Rock due to a crackdown by APRA in relation to investment lending. Specialist lenders such as La Trobe Financial and Resimac continue to offer SMSF Specialist products.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”What costs are involved in a SMSF loan?”][vc_column_text animation_delay=”200″]Refer to our SMSF Rates Matrix for detailed information on current fees across known SMSF loan products. Generally the following fees will apply for a SMSF Loan (refer to each lender for a complete list of fees and charges):

  • Application Fee
  • Valuation Fee
  • Legal Fees
  • Monthly Administration/Service fees
  • Early repayment fees

[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”Can I use my equity to provide a loan to the SMSF?”][vc_column_text animation_delay=”200″]Yes, this is referred to as a related party loan. Read more[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”Should I obtain a SMSF loan pre-approval?”][vc_column_text animation_delay=”200″]Yes, pre-approval is recommended to determine your borrowing power.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”How long does it take to obtain approval?”][vc_column_text animation_delay=”200″]Once an application is submitted to a lender, pre-approval will generally be received within two business days.
[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=” How much does it cost to obtain SMSF loan pre-approval?”][vc_column_text animation_delay=”200″]Redwood are mortgage brokers – we do not charge to obtain pre-approval, so its FREE.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”Can my SMSF Loan have an offset account?”][vc_column_text animation_delay=”200″]Yes, however only certain lenders offer an offset account.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”What are the benefits of an offset account?”][vc_column_text animation_delay=”200″]An offset account is a valuable feature of a SMSF loan as the cash held by the SMSF will offset the loan balance – reducing monthly interest repayments. Read more

.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”Does my SMSF need to be set up before I obtain an SMSF Loan?”][vc_column_text animation_delay=”200″]Yes, before you purchase property, your SMSF should be established and therefore, your SMSF should be established before you apply for a loan.
[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”What if I repay my SMSF Loan early?”][vc_column_text animation_delay=”200″]Generally lenders will charge a early repayment fee, refer to each lenders terms and conditions for early repayment fees and charges.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”How do I payoff my SMSF Loan?”][vc_column_text animation_delay=”200″]Your repayments will be made from the SMSF cash balance.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”What if I cannot find a tenant for the property?”][vc_column_text animation_delay=”200″]If you cannot find a tenant for your property, you will be required to service the loan repayments from either your SMSF cash reserves or contributions made to the fund. It is important to ensure you have a sufficient cash buffer after the settlement of the SMSF property.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”How much cash do I need in my SMSF after settlement of my SMSF Property?”][vc_column_text animation_delay=”200″]It depends. Certain lenders will impose a liquidity requirement before settlement. For example, St George requires 10% of liquid assets at settlement. It is essential you consider your required cash reserves prior to purchasing SMSF property to ensure you have sufficient funds at settlement and in case your SMSF property is not tenanted immediately.
[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”Should I use a mortgage broker or a bank for my SMSF Loan?”][vc_column_text animation_delay=”200″]Not all banks offer a SMSF Loan. A broker will have access to all SMSF lenders and generally will not charge for the service. [/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”Which name do I include on the Contract of Sale?”][vc_column_text animation_delay=”200″]To ensure you do not receive double stamp duty in the future, you will need to seek advice for the name to be used on the contract of sale. The name will differ from state to state.
[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”Should I pay for my SMSF Property deposit from my SMSF?”][vc_column_text animation_delay=”200″]Yes, a deposit should be paid from the available funds of the SMSF. [/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”What should I do before I sign a contact for SMSF Property?”][vc_column_text animation_delay=”200″]Seek Advice from a qualified SMSF professional and solicitor. An SMSF specialist will ensure your purchase is compliant with Australian Superannuation Law and establish your bare trust. Your solicitor will review the contract of sale to ensure you are aware of all factors that impact the purchase i.e. car park on the same title for apartment. Read more for a due diligence checklist.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=” Can I improve the property with a SMSF loan?”][vc_column_text animation_delay=”200″]There are strict laws that apply to LRBAs. Refer to our blog for more information on the laws and regulations in relation to improvements and repairs.[/vc_column_text][/vc_accordion_tab][vc_accordion_tab title=”What is the maximum SMSF loan term?”][vc_column_text animation_delay=”200″]Loan terms will differ between lenders. Generally a maximum loan term is 30 years. Refer to our SMSF Rates Matrix for detailed information on maximum loan terms across known SMSF loan products.[/vc_column_text][/vc_accordion_tab][/vc_accordion][/vc_column][/vc_row]