In short: Yes!
Many SMSF trustees are under the impression that once they have an SMSF loan (Limited Recourse Borrowing Arrangement), they are “locked in” for the life of the loan. This is a myth.
With major banks exiting the SMSF lending market and “grandfathering” existing loans, interest rates on older products have often drifted well above market averages. If you are paying more than 9%, you are likely paying too much.
Why Refinance Your SMSF Loan?
The primary reason to refinance is to save money on interest, but there are other benefits:
- Lower Repayments: Switching to a more competitive rate can significantly improve your SMSF’s cash flow.
- Extend Loan Term: If your current term is short, you may be able to extend it to a maximum of 30 years (subject to approval).
- Switch Features: Move to a lender that offers a compliant offset account (see our article on SMSF Offsets).
The Golden Rules: What You CAN and CAN’T Do
Refinancing an SMSF loan is governed by strict ATO rules. Failing to follow them can lead to your fund being deemed non-compliant.
You CAN:
- Refinance Dollar-for-Dollar: You can switch your existing debt to a new lender.
- Cover Switching Costs: You can often include the costs of the refinance (legal fees, valuation) in the new loan amount.
- Change Lenders: You are free to move from a bank to a non-bank/second-tier lender.
You CANNOT:
- Equity Release (Cash Out): You cannot borrow extra money to renovate the property or invest in other assets. The loan amount must reflect the existing debt.
- Change the Asset: You cannot use a refinance to “swap” the property held in the Bare Trust.
- Borrow for Repairs: While you can use fund cash for repairs, you generally cannot increase your loan amount to fund them during a refinance.
Here’s an example of the potential impact on refinancing:
| Metrics | Current Lender | Same Term | Extended Term |
| Loan | $1,000,000 | $1,000,000 | $1,000,000 |
| Rate | 9.80% | 6.94% | 6.94% |
| Term | 15 years | 15 years | 30 years |
| Repayments pm | $10,625 | $8,995 | $6,613 |
| Repayment difference pa | N/A | $19,560 | $79,356 |
Is Your Rate Too High?
The SMSF lending market is specialised. Because the big banks no longer compete in this space, many trustees aren’t aware of the current competitive rates offered by second-tier and specialist lenders. These lenders often don’t advertise to the public and work exclusively through accredited brokers like SMSF Mecca.
Your SMSF Refinance Checklist
To get started, you will need:
- Trust Deeds: Your SMSF Deed and the Bare Trust (Custody) Deed.
- Financials: The last two years of SMSF annual returns and audit reports.
- Rental Info: A current lease agreement or rental appraisal.
- Loan Statement: The last 6 months of your current SMSF mortgage.
Summary
Refinancing is one of the most effective ways to boost the long-term retirement savings of your fund. By reducing your largest expense, interest, you keep more of your hard-earned capital working for you.
How much could you save? Use our SMSF Loan Calculator to see the difference a lower rate makes, or talk to the SMSF Mecca team to find out which second-tier lenders are currently offering the best value.