Five common myths related to SMSF Lending 

Today we are delving into some of the common SMSF lending misconceptions that clients frequently come to us with. From offset accounts to deposit amounts, we debunk common myths related to SMSF lending.

Myth 1: Banks Don’t Lend to SMSFs

Busted: Contrary to popular belief, you can borrow to acquire property within a Self-Managed Super Fund (SMSF). While major banks and their representatives may not offer this option, we have access to seven lenders who specialize in SMSF lending. This provides our clients with a wide range of options for both residential and commercial property acquisitions.

Myth 2: You Can’t Have an Offset Account in an SMSF

Busted: Offset accounts are indeed available for both residential and commercial SMSF loans. These accounts hold significant financial power since for every dollar in an offset account, you save a dollar in interest payments. Consider this: while cash within an SMSF may earn 4.75% to 5%, offsetting your mortgage rate, typically around 6.94%, allows you to outperform the risk-free rate by a substantial margin.

Myth 3: SMSF Loans Have High Rates and Restrictive Terms

Busted: While SMSF loans may come with a risk premium, this premium is generally only 0.4% to 0.7% higher than standard residential investment or commercial property loans. Terms are also quite flexible for loans under $3 million, including 30-year loan terms, offset features, and interest-only options.

Myth 4: You Need a Large Deposit for Property in an SMSF (30% to 40%)

Busted: Standard loan-to-value ratios for residential properties in SMSFs typically range from 80% and, in some cases, can even be as high as 90% if needed. Commercial property loans, provided they are not specialized in nature, can also have an 80% loan-to-value ratio.

Myth 5: SMSF Loans Require a Lengthy Settlement and Finance Period

Busted: The key to swift SMSF loans lies in thorough preparation, as it’s not the lending process but the administrative and legal aspects that take time. Assuming the fund is established, and the necessary information is provided, financing can be secured within as little as 14 days, with settlement in 30 days for residential properties. Commercial property transactions typically require 21 days for financing and 45 days for settlement, with the valuation process being the most time-consuming factor.

In conclusion, SMSF lending is a viable and flexible option for those looking to invest in residential or commercial properties. Debunking these myths reveals that with the right approach and knowledge, SMSF lending can be a powerful tool for wealth creation.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.