Using your SMSF to purchase property can help you guarantee a financially sound future
Rather than paying large amounts of money into managed funds, a Self-Managed Superannuation Fund (SMSFs) allows its members to manage the fund themselves and have hands-on control when it comes to growing their pooled contributions. Recent amendments to Australian law mean that SMSFs can now be used to purchase property, and Bendigo Bank's SMSF loan is specifically designed to finance such investments.
Bendigo Bank will consider granting this loan to an SMSF if the purchase falls within the SMSF's investment strategy and if the property is eligible.
Features of the Bendigo Bank Self Managed Superannuation Fund Loan
- Interest rates. Borrowers can opt for fixed rates on a loan period of 10 years, while variable interest-rate options are available for loan periods of up to 15 and 20 years.
- Principal and interest or interest-only repayments. Borrowers can choose to pay only the interest on their loan repayments. This is an alternative for those who plan on reselling the property relatively quickly.
- Deposit. This type of loan requires a deposit of at least 30% of the property's value.
- Investment strategy. For an SMSF to benefit from the Bendigo Bank Self Managed Superannuation Fund Loan, your investment strategy must make allowances for property bought with loans, and should also stipulate how the SMSF plans to deal with risks and returns, diversification and member issues.
- Compliance. This loan will only be granted to SMSFs complying with the conditions of the Australian Taxation Office (ATO) and the Australian Securities and Investment Commission (ASIC).
- Payment options. SMSF borrowers can choose from a range of repayment options.
Fees you can avoid
- Lenders Mortgage Insurance (LMI). This is payable when securing a loan with less than a 20% deposit and insures the bank against non-payment of the loan. If the deposit is greater than 20%, borrowers are not liable to pay this fee.
- Loan Protection Insurance (LPI). This optional protection insurance covers the borrower in the case of death, injury or unemployment. LPI can be paid monthly or be added to the loan amount as a lump sum.
- Fixed-rate lock fee and application fee. If opting for a loan with a fixed rate, this fee allows borrowers to fix the rate at the time of the application for up to three months until settlement. This does not apply to loans subject to variable rates.
Fees you can’t avoid
- Legal fees: $2000 to $4000. These fees could be higher depending on the complexity of the loan and its administrative requirements.
- Application fee: $150. This fee is levied when borrowers apply for a new loan or make changes to an existing loan.
- Valuation fee. This fee covers the cost of having the property valued by a third party. The amount varies depending on the size and location of the property.
- Discharge fee. The bank charges the borrower this fee to facilitate the discharge of the loan.
How to apply for the Bendigo Bank Self Managed Superannuation Fund Loan
Applying for a property loan through an SMSF is more complex than applying for a regular home loan, so seeking legal and administrative advice is the first step in the application process (which implies variable legal fees).
Whether managed by an individual or members, the SMSF must have the necessary powers to purchase property with borrowed funds.
Applicants must be Australian residents with an SMSF already established. Essential documents include:
- Financial information including audited financial statements, tax returns and rental estimates to prove the SMSF’s ability to repay the loan
- Certified copies of the SMSF and property trust deeds
- A compliance letter
Buying residential or commercial property through an SMSF is a complex process thanks to tough legal and administrative conditions, but SMSF members can reap rewards in the way of tax benefits and contributions towards retirement funds.
Extra information about SMSFs
This loan is available for the purchase of residential and commercial property. Buying property through an SMSF implies major tax benefits for its members, especially if the property is sold during the pension phase. If the property is sold before the end of the first year of ownership, the fund pays 15% capital gains tax (CGT) on the taxable income figure. This percentage decreases if the SMSF holds on to the property beyond the first year. If the property is sold in the pension phase, the SMSF pays no CGT.
As an SMSF, it's more difficult to get loan approval because of the higher deposit required and stricter conditions when considering the SMSF’s ability to make repayments. The SMSF's investment strategy must include stipulations about it being able to make property purchases with borrowed money.