Canstar News - January 30th
In recent months, it's been reported that an increasing number of self-managed super fund (SMSF) trustees are incorporating cryptocurrencies into their SMSF investment strategies. This is in spite of the notorious volatility in the price of 'cryptos' such as bitcoin,…– Read more
Self Managed Super Funds - November 29th
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An SMSF loan is a home loan used by a self-managed super fund (SMSF) to buy investment property. The returns on the investment – whether that’s rental income or capital gains – are funnelled back into the super fund, increasing your retirement savings.
It’s worth noting rental income cannot be disposed of by a trustee or given as a pre-retirement benefit to a member of the fund – it can only be used to increase the retirement savings that will eventually be paid out to members once they retire.
Further, the property cannot be acquired from, lived in or (except in very limited circumstances) rented out to a fund member or any of their related parties.
Investing in property within superannuation is not as straightforward as investing outside the superannuation environment. All investments need to be in the best interests of fund members and in accordance with the laws around SMSF borrowing.
Please note that these are a general explanation of the meaning of terms used in relation to SMSF loans. The wording of loan terms and conditions may use different phrases or terms, and you should read the terms and conditions of the relevant loan to understand the features and cost of that loan. You cannot rely on these terms to the part of any loan you may purchase. Refer to the product disclosure statement (PDS) and Canstar’s Financial Services and Credit Guide (FSCG).
Beneficiary: The person or people who will receive the SMSF money and assets upon becoming eligible (e.g. by reaching 65 years of age or permanently retiring).
Capital Gains Tax (CGT): The tax payable on the gain in value of an asset, which is payable at the time you choose to sell it. At the time of writing, SMSFs that sell assets must pay the standard CGT of 15%, with a discount to 10% if the asset has been held for 12 months or more. Learn about capital gains tax (CGT).
Comparison rate: An interest rate figure that represents the total annual cost of the loan, including the annual interest rate, monthly repayments, and most ongoing and upfront fees and charges. Read the Canstar comparison rate warning.
Conditions of release: These are restrictions placed on SMSF funds for how and when benefits can be paid to beneficiaries. A condition of release must be met before a benefit is paid. Some conditions of release have ‘nil’ cashing restrictions: retirement, reaching age 65, reaching preservation age and permanently retired, death, permanent incapacity or termination of employment, and the benefit is less than $200.
Credit rating (credit score): An assessment of the credit-worthiness of individual borrowers, based on their borrowing and repayment history (credit report). Lenders consider your credit rating when deciding whether or not to give you a loan, how much to loan you, and what interest rate you will pay.
Fixed rate: A fixed rate home loan allows a borrower to lock in an interest rate for a particular period of time, typically from 1 year up to 5 years. The interest rate that the borrower pays will remain the same for that loan term. Learn more about fixed rate loans.
Introductory rate or honeymoon rate: An introductory rate offered to entice borrowers with a low advertised rate for the first few months of the loan. After the honeymoon period, the loan reverts to the standard variable interest rate offered by the lender. Learn more about honeymoon rates.
Negative gearing: When the income from an investment property is not enough to pay the interest on the home loan for that property, negative gearing is currently available as a tax deduction against that income. Learn more about negative gearing.
Offset account: A savings account linked to your loan to offset the interest charged on your loan. The money (or credit) in your account is offset daily against your loan balance, which reduces the daily mortgage interest charges. Learn more about offset accounts.
Pre-approval: An initial approval process where the bank provides a borrower with an estimate of how much they could borrow, based on information they have provided to the bank. Learn how to get home loan pre-approval.
Redraw: A home loan feature that enables the borrower to withdraw additional repayments they have already paid on top of their required monthly repayments. This may not be available on all loans. Learn more about redraw facilities.
Reversionary beneficiary: The person who will receive the benefit of the SMSF if the original member dies.
Settlement date: The date on which transfer of ownership officially takes place, the buyer pays the rest of the purchase price, and the final legal documents are exchanged. It is also usually the date on which the buyer receives the keys and assumes possession. Find out how settlement is conducted.
Split loan: A home loan in which a predetermined portion of the loan is locked in at a fixed interest rate and the rest is charged at a variable rate of interest. Learn more about split loans.
Stamp duty: The state or territory government’s tax calculated on the borrower’s loan amount. Find out what your stamp duty could be.
Trustee: The individuals or companies who are responsible for the SMSF, including the decision making, investing, and dealing with service providers.
Variable rate: A home loan interest rate that fluctuates according to the official cash rate set by the Reserve Bank of Australia. The rate can go up or down over time, varying your repayments. These loans allow for more flexibility and options. Learn more about variable rate loans.
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