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What is an SMSF loan?

Couple considering an SMSF loan.

Australians often use self-managed super funds (SMSF) for retirement savings. But did you know you can invest in property with them? An SMSF home loan lets you use your retirement savings as a deposit, opening doors to property ownership you may not afford otherwise. Interested? Start your SMSF property journey today for a secure financial future.

First of all, what is a self managed super fund?

Unlike an industry or retail super fund, which manages your investments for you, an SMSF gives you control over how your retirement savings are invested. It also falls on you to make sure the SMSF abides by tax and superannuation laws.

Managing an SMSF requires a great deal of time and knowledge, and there’s always the risk that your fund will underperform. For this reason, it’s a good idea to speak to an accountant or financial advisor to determine if an SMSF is right for you.

How does an SMSF home loan work?

An SMSF home loan lets you leverage the funds in your self-managed super fund to purchase an investment property. Any rental income or capital gains from the property are reinvested, and can only be accessed at retirement.

Strict conditions apply when using your SMSF to purchase property which include:

  • The property must be used solely to provide retirement benefits to fund members
  • The property must not be acquired from a related party of a member
  • A fund member or related party cannot live in the property
  • A fund member or related party cannot rent the property.

As a rule, your SMSF must pass the ‘sole purpose test’ if it is to be eligible for the usual super fund tax concessions. This means it cannot be used for any other purpose besides providing a retirement benefit to you and other members.

If you live in the property or receive income from it, this is considered a pre-retirement benefit. The Australian Tax Office explains that this is a serious offence, and can result in civil and criminal penalties.

How do I purchase a property through my SMSF?

Before you get started, it’s recommended you speak to a legal professional with expertise in SMSF lending. They can help you plan your purchase and make sure the SMSF complies with all legislative requirements.

When it comes time to submit a home loan application, be sure to weigh up your options carefully. Not all lenders offer SMSF home loans, and the ones that do tend to charge higher rates than traditional home loans. 

You should also take extra care when filling out the property loan documents and contract, as you won’t be able to change the terms of the loan once everything is finalised.

If your application is successful, a custodian will put up the property as security with the lender. The loan is a limited recourse borrowing arrangement (LRBA), which means the lender is not entitled to any other assets held in the SMSF if the loan defaults.

You will need to make sure the SMSF has enough money to cover repayments, not to mention stamp duty, insurance and maintenance costs. If the property is rented out, the rental income must go towards paying off the loan and cannot be pocketed.

Once the loan balance has been paid off in full, the legal title to the property will be transferred from the custodian to the SMSF. At this point, your fund can continue receiving rental payments or the property can be sold off.

SMSF home loan options

Homestar Blue SMSF
  • Competitive variable rate of 6.99% p.a. (7.05% p.a. comparison)
  • Offset account
  • No annual fee

As a Mozo Experts Choice Award winning lender, Homestar is known for its competitively priced home loans. The Star Blue SMSF home loan has a competitive rate of 6.99% p.a. (7.05% p.a comparison) for SMSF borrowers purchasing or refinancing with at least a 30% deposit. It’s available for loans of up to $1.5 million and comes with an offset,  extra repayments and redraw as well as the option to choose between weekly fortnightly or monthly repayments. There’s no annual fee but you will need to pay legal and a valuation fee.  

loans.com.au SMSF 80 Loan (Principal & Interest)
  • 7.49% p.a. variable rate (7.50% p.a. comparison rate*)
  • Free extra repayments
  • No ongoing fees
Find out more

With the loans.com.au SMSF 80 Loan, buyers and refinancers with an LVR below 80% can access variable rates starting at 7.49% p.a. (7.50% p.a. comparison rate*) for a fixed 3 year principal and interest loan. Loan amounts range from $50,000 and $1 million, and you’ll be able to make extra repayments without incurring any penalties. There is a $490 legal fee for purchases, and if the loan doesn't go to full term a $300 discharge fee and $250 discharge documentation fee will apply.

Frequently asked questions

How much can I borrow with an SMSF loan?

Just as with regular home loans, the amount you’ll be able to borrow will depend on your financial circumstances. When determining your borrowing power, your bank will take into account things like current interest rates, the loan term, your annual salary, and the amount of rental income you expect to receive yearly.

What is the sole purpose test?

According to the sole purpose test, an SMSF must be maintained solely to provide retirement benefits to fund members (or their dependents if a member dies before retirement). If an SMSF doesn’t meet this requirement, it won’t be eligible for the tax concessions available to regular superannuation funds.

Can I live in a property bought with an SMSF loan?

As a general rule, you cannot live in a property bought using an SMSF loan until you retire. Doing so would be considered personal use of a fund asset and would contravene the sole purpose test. Importantly, this applies not just to fund members but also any related parties of fund members.

If the property is a commercial property, you will be allowed to lease it out to fund members or related parties for business purposes, but there are a few rules you’ll need to follow. For example, it must be leased at market rate.

What are the risks of an SMSF home loan?

There are a few risks associated with SMSF loans that you’ll need to be aware of. These include:

Higher costs: SMSF home loans tend to be more expensive than traditional property loans.

Cash flow issues: You’ll need to make sure your SMSF’s bank account has enough cash flow to cover all expenses relating to the loan. This includes loan repayments, insurance, rates, and stamp duty.

Cannot make alterations to the property: While repairs and maintenance to the property are allowed, you won’t be able to make any renovations that would change the character of the property until the loan is paid off.

Difficult to cancel: If you take issue with the terms of your loan after it has been set up, you will find it’s extremely difficult to unwind the arrangement. If you’re forced to sell the property because of this, you might suffer substantial losses.

Tax losses: You won’t be able to offset any tax losses from the property against the taxable income you receive outside the fund.

Home loan comparisons on Mozo - last updated 22 February 2024

Search promoted home loans below or do a full Mozo database search. Advertiser disclosure
  • Straight Up

    Obliterate, Investor, Principal & Interest, <50% LVR

    interest rate
    comparison rate
    Initial monthly repayment
    6.34% p.a. variable
    6.34% p.a.

    Investors get a low variable rate depending on your deposit with Athena’s Straight Up Investor Variable Home Loan. AcceleRATES feature helps you to reduce your home loan even faster (T&Cs apply). Zero fees to pay. Free redraw facility. Handy mobile app to manage your home loan.

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  • Star Blue - SMSF Refinance Special

    Principal and Interest, LVR<70%

    interest rate
    comparison rate
    Initial monthly repayment
    6.99% p.a. variable
    7.05% p.a.

    Grow your property portfolio with Homestar’s SMSF Home Loan. Offset account included. No liquidity or net asset position requirements. No ongoing fees. Minimum set-up costs. Fast application process with a dedicated home loan specialist.

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  • Back to Basics Special

    LVR<60%, Investment, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    6.43% p.a. variable
    6.44% p.a.

    Competitive variable for investors with no monthly account keeping or ongoing annual fees. Unlimited additional repayments & option to redraw additional repayments as cashback.

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  • Fixed Home loan

    50%-60% LVR, Investment, Interest Only

    interest rate
    comparison rate
    Initial monthly repayment
    6.54% p.a.
    fixed 3 years
    6.24% p.a.

    Competitive rate tiers for investors only. Leverage the equity you have built up for a lower interest rate. Enjoy a super-fast application process. Split up to 10 loans against your property. Optional offset accounts. Unlimited fee-free transactions. Interest only option.

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    Details
JP Pelosi
JP Pelosi
RG146
Managing editor

Managing Editor Jean-Paul (JP) Pelosi leads the editorial team, with over 20 years of experience writing for top outlets like The Guardian, The Sydney Morning Herald and News.com.au. JP's expertise in home loans and property is complemented by his rich background at major financial firms including CommBank, Suncorp and Amex. Holding a Master's in Communications and international experience in journalism, JP combines passion with skill and has a unique ability to apply this editorial experience and financial knowledge to advise the team on how to create engaging financial content for Australian consumers.

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

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