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Enjoy the security of a fixed rate when you invest in property through your SMSF
Whether an SMSF already exists or prospective members are planning to establish one, buying property through a super fund could guarantee tax benefits for its members.
The Bank of Melbourne's Fixed Rate Super Fund Home Loan with a fixed rate could be ideal for those who want the stability of the fixed-rate option to protect against interest-rate fluctuations during the period of the loan.
Those with an SMSF can choose the terms of repayment and also use the income from rent to help pay off the loan. Fixed-rate borrowers also benefit from a partial-interest offset and, if making interest-only repayments, they're also offered an interest-in-advance option to facilitate a lump-sum interest payment.
Things to consider about the Bank of Melbourne Fixed Rate Super Fund Home Loan.
This loan can be used to purchase residential property in Australia. While the stipulations allow for borrowed funds to be used for maintenance and repair, it does not allow for 'improvements' to the property. The Super Fund Fixed Home Loan will only be granted if the SMSF’s investment strategy makes allowances for the trust to finance a purchase with borrowed money.
This is a limited recourse loan, which means that should the SMSF default on payments, the bank only has claim to the property purchased, while the other assets held by the SMSF are off limits. The Bank of Melbourne also offers the same loan with variable-rate and split interest-rate options.
Features of the Bank of Melbourne Fixed Rate Super Fund Home Loan
- Rate lock.
The rate-lock feature ensures that the loan's interest rate is fixed at the percentage on the day of the signing.
- Repayment options.
Loans taken out over a period of up to 30 years can be repaid with principal and interest repayments, while loans up to 15 years can be repaid with interest-only repayments. This loan allows for weekly, fortnightly and monthly repayments (monthly for interest-only repayments).
- Interest in advance.
Borrowers choosing to make interest-only repayments have the option of paying off the interest in advance. This lump-sum payment implies a discount on the fixed rate and an immediate tax deduction.
- Partial interest offset.
The fixed-rate loan allows for a partial interest offset for the loan amount equal to the sum accumulated in the linked account.
- Loan amount and loan-to-value ratio (LVR).
The Super Fund Loan is granted from a minimum of $100,000 to a maximum of $2,000,000. An LVR of up to 70% applies for an SMSF individual trustee, while 80% LVR applies to an SMSF company.
- Limited recourse loan.
If the SMSF defaults on loan repayments, the bank can only claim on the property itself and not the others assets held by the SMSF.
Fees you can avoid
- Additional valuations: This fee is charged if the SMSF requests additional valuations for the property to be purchased.
- Second Mortgage Consent: $100. If another bank registers a second mortgage on the property, the borrower is liable to pay this fee.
- Renegotiation fee: $500. The borrower is liable for this fee if the bank is asked to modify the conditions of the loan.
- Break fees. As long as repayments are made on time, the loan amount is not repaid before the end of the loan period and the borrower doesn't switch between interest-rate types, this fee does not apply.
- Interest-in-advance fee: $150. This fee is charged every time a borrower asks to pay interest in advance.
Fees you can't avoid
- Application fees: $1,500. This fee covers the opening and establishment of the loan.
- Monthly fee: $12. This fee covers the administration cost of the loan.
- Mortgage discharge fee: $350. The bank charges this fee to cover the administration involved in terminating the loan. This also applies to partial discharges.
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How to apply for the Bank of Melbourne Fixed Rate Super Fund Home Loan
To be eligible for the Super Fund home loan, borrowers must be Australian citizens grouped in an SMSF or planning to establish one.
The property to be bought through the SMSF must be in Australia. The SMSF's investment strategy must include the buying of property with borrowed funds. This is a long-term investment, so SMSFs should seek legal and financial counsel before agreeing to loan terms.
Applying SMSFs must provide the following documentation:
- A certified copy of the trust deed
- Financial statements showing rental income and members' contributions
- Income, assets and expenses incurred by the SMSF to prove that it's able to make repayments
- A contract of sale
The fixed-rate Super Fund home loan gives SMSFs control of their investment with a range of payment choices and the option to fix the interest rate. SMSFs should consult financial and legal experts before committing to a long-term engagement.