Unlock Savings: Refinance Your SMSF - Sandcastle Finance
As the world of fixed-rate mortgages dominates the headlines, another interest rate shock is quietly approaching, affecting your SMSF and retirement plans.
SMSF loans have often been referred to as 'sleeper loans' because once the loan is settled, there isn't much more to be done. Unlike traditional mortgages, SMSF loans don't offer opportunities to access additional equity in the property for various purposes. They tend to be "set and forget." For many SMSF trustees, this hasn't posed any problems—until now.
These loans are already starting to provide quite a rude awakening.
The SMSF lending landscape is undergoing a transformation, with traditional banks giving way to non-bank lenders. As this shift occurs, SMSF trustees are witnessing an increase in their interest rates.
Interestingly, this hasn't significantly affected their monthly cash flow because everything operates within their SMSF. Now, many of these residential SMSF loans are carrying interest rates exceeding 10% p.a.
If you think this is high, you’re not alone.
The search for a better rate is leading to a surge in demand for refinancing SMSF loans and the trend is expected to continue and perhaps even peak when trustees complete their annual returns and discover that their SMSF loans have become negatively geared.
Let’s think about what this means for a minute.
When your SMSF is negatively geared, it means that the rental returns are no longer covering the property expenses, with most of these expenses squarely from growing interest rate expense.
So essentially instead of building up a nice nest egg in your SMSF, the loan interest erodes into rental income and also chips away at the contributions and yes, future retirement savings.
In recent transactions, we’ve observed significant annual interest savings - with refinancing down from 10% to a low of 6.89% p.a., saving as much as $8,000 per year.
That’s equivalent to a fund member receiving a super guarantee boost from a $72,500 pay rise (based on 11% SGE contribution).
But the compounding effect in your SMSF makes this incredible leverage, putting thousands of dollars back into your super and increasing your retirement savings year upon year.
So there’s no need to put up with high interest rates.
In fact, don’t wait!
Take action today to refinance and safeguard your retirement savings.
Explore how you can benefit from SMSF lending solutions and possibly reduce your SMSF loan interest expenses by contacting our team.
