Self Managed Super Fund (SMSF) home loans are more complex than regular home loans, as any property purchased must be for the sole benefit of the SMSF, not the individual trustees.

The property must also provide a market return, that will be used to benefit the super fund members when they reach the retirement age of 65.

Whilst you can both borrow and loan money from an SMSF for the purpose of buying property, there are many restrictions, regulations and conditions that you must meet to ensure that the purchase is legal.

If the purchase is not legal as per the Australian Taxation Office (ATO) guidelines, you may risk losing half of the assets in your SMSF, and face thousands of dollars in fines.

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Advertised Rate

4.89%

Variable

Comparison Rate*

5.51%

Company
Freedom Lend
Repayment

$1,223

monthly

Features
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Borrow up to 65%
Extra Repayments
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Owner Occupied
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1.97

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Winner of Best smsf home loan, RateCity Gold Awards 2021

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Advertised Rate

5.04%

Variable

Comparison Rate*

5.66%

Company
Freedom Lend
Repayment

$1,260

monthly

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1.97

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Advertised Rate

5.29%

Variable

Comparison Rate*

5.90%

Company
Freedom Lend
Repayment

$1,323

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1.97

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4.49%

Variable

Comparison Rate*

5.04%

Company
Freedom Lend
Repayment

$1,666

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1.97

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4.64%

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Comparison Rate*

5.18%

Company
Freedom Lend
Repayment

$1,691

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1.97

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4.89%

Variable

Comparison Rate*

5.43%

Company
Freedom Lend
Repayment

$1,735

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1.97

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4.95%

Variable

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5.38%

Company
Liberty Financial
Repayment

$1,745

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1.33

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4.99%

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5.48%

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Mortgage House
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$1,752

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1.71

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4.99%

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5.57%

Company
Rate Chaser Home Loans
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$1,752

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1.76

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Advertised Rate

5.39%

Variable

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5.97%

Company
Rate Chaser Home Loans
Repayment

$1,823

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Borrow up to 70%
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1.76

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Advertised Rate

5.89%

Variable

Comparison Rate*

6.47%

Company
Rate Chaser Home Loans
Repayment

$1,913

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1.76

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Advertised Rate

6.29%

Variable

Comparison Rate*

6.86%

Company
Rate Chaser Home Loans
Repayment

$1,986

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Features
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Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

1.76

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Advertised Rate

5.50%

Variable

Comparison Rate*

5.68%

Company
Regional Australia Bank
Repayment

$1,842

monthly

Features
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Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

1.40

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Advertised Rate

5.69%

Variable

Comparison Rate*

5.76%

Company
La Trobe Financial
Repayment

$1,876

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Features
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Borrow up to 80%
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Interest Only
Owner Occupied
Real Time Rating™

1.33

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Advertised Rate

6.41%

Fixed - 2 years

Comparison Rate*

6.45%

Company
LJ Hooker Home Loans
Repayment

$1,603

monthly

Features
Redraw facility
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Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

0.72

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Advertised Rate

6.41%

Fixed - 1 year

Comparison Rate*

6.45%

Company
LJ Hooker Home Loans
Repayment

$1,603

monthly

Features
Redraw facility
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Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

0.72

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Advertised Rate

6.42%

Variable

Comparison Rate*

6.46%

Company
LJ Hooker Home Loans
Repayment

$1,605

monthly

Features
Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

0.72

/ 5
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Advertised Rate

6.46%

Fixed - 3 years

Comparison Rate*

6.47%

Company
LJ Hooker Home Loans
Repayment

$1,615

monthly

Features
Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

0.72

/ 5
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Advertised Rate

6.61%

Fixed - 4 years

Comparison Rate*

6.53%

Company
LJ Hooker Home Loans
Repayment

$1,653

monthly

Features
Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

0.72

/ 5
Go to site
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Advertised Rate

6.71%

Fixed - 5 years

Comparison Rate*

6.58%

Company
LJ Hooker Home Loans
Repayment

$1,678

monthly

Features
Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

0.72

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Learn more about home loans

What is an SMSF loan?

An SMSF loan describes money loaned or borrowed by a Self Managed Super Fund (SMSF) and it’s trustees. An SMSF is a superannuation fund managed by the trustees of that fund, that are also the members of that fund. 

How does an SMSF work?

Acting essentially as ‘do-it-yourself’ superannuation fund, members of an SMSF are responsible for complying with Australian superannuation and tax laws, and must make investment decisions on behalf of the fund.

As the purpose of an SMSF is to generate returns for the trustee’s retirement, borrowing or lending money must be for the sole benefit of the SMSF, not the individual trustees. Investments must also not generate value to be enjoyed in the present day, but focus on returns for when the trustees retire.

Setting up a Self Managed Super Fund for the purpose of accessing your super early, renovating your home, or purchasing assets that benefit an individual trustee is illegal. As such, it’s important for trustees to seek professional advice from a financial adviser before setting it up.

Borrowing from an SMSF

Some people assume that an SMSF is beneficial as it can provide them with early access to funds or can empower them to use their SMSF to borrow money for personal use. 

This is inaccurate and doing so can cost you dearly. Using money from an SMSF to fund a purchase must be for the benefit of the fund, not the individual members or trustees.

When is an SMSF loan illegal?

Borrowing money from an SMSF for individual gain is illegal. If you are caught borrowing money from an SMSF for the purpose of personal benefit, the fund can be made ‘non-complying’ by the Australian Taxation Office (ATO). This means you can lose access to up to half of the funds in your SMSF. You can also incur serious penalties, including thousands of dollars in fines and potentially, be sentenced to time in jail.

As a rule, SMSF trustees are generally not allowed to borrow money at all, especially when they are borrowing money to benefit any related parties. These related parties can include SMSF members, friends, relatives or business associates. Trustees are also not allowed to borrow money that does not generate a market return. This is because a super fund is run for the sole purpose of providing benefits to members when they retire.

When is an SMSF loan legal?

An SMSF loan is legal when it is a limited recourse borrowing arrangement (LBRA).

An LBRA is a loan taken out by an SMSF trustee with a third party lender, to purchase a single asset (or collection of identical assets that have the same market value) that provides investment returns to the SMSF. 

This type of SMSF loan is generally a long-term investment, to provide a market return, and is legal.

If the SMSF defaults on the LBRA, the third party lender’s rights are limited to recovering only that asset, so that the other assets owned by the SMSF remain protected.

Why do you need an LBRA for an SMSF loan?

When borrowing from an SMSF, trustees must organise an LBRA. If they do not they are breaking the ATO superannuation laws. If an auditor reports that your SMSF has borrowed money without an LBRA, you may be ordered to sell the property and your fund could be made ‘non-complying’.

There are many costs involved with selling a property, and if you borrow money without such an arrangement, you may have to sell the property for less than the SMSF paid for it. This can also result in thousands of dollars in fines for the individual trustee who set up the illegal loan.

Borrowing money with an LBRA can work, however it’s important that you follow all the rules and speak with an SMSF professional before you sign anything.

Find out more about limited recourse borrowing arrangements at the ATO website.

Can you purchase property with SMSF funds?

As long as you follow the rules, and the reason for purchasing property is to create financial returns that are funneled directly back into your SMSF, you may be able to purchase property with an SMSF loan.

Self Managed Super Funds restrict investments that concern related parties, like members, friends and family.  This means you cannot purchase property that a related party owns or owned. 

However, a market value purchase of business real property is a legal property purchase.

What is business real property?

Business real property generally refers to land and buildings used wholly and exclusively for business purposes. If you are purchasing business real property from SMSF finance, you must also ensure this investment meets your SMSF investment strategy to maximise the returns of the fund.

There are some exceptions to the rule that land and buildings must be wholly and exclusively used for business purposes. If, for example, you choose to purchase a rural working farm with funds from the SMSF, and there is a dwelling on the farm that is for private use, you may still be able to count this purchase as business real property.

To do this, you need to prove that the rural farm is predominantly for business use, and the dwelling must be in an area no more than two hectares.

Find out more about business real property at the ATO website.

Can you loan money for property with funds from an SMSF?

Generally, an SMSF is not allowed to loan money, unless it is in the best interests of the fund members, and complies with your SMSF investment strategy.

An SMSF cannot under any circumstances loan money to or provide direct financial assistance to any related party, nor can the fund guarantee loans for members or their relatives.

However, an SMSF can legally loan money to an individual or business, to generate a positive return for super members.

When is a loan made by an SMSF legal?

If your SMSF is considering loaning money to an individual or business, it must be in the best interests of all fund members. It must also be for the sole purpose of generating a market return for members when they retire.

For instance, a business loan that charges interest over a 10-year period may qualify as a legal SMSF loan, as long as it matches the SMSF investment strategy and does not involve any related party.

If your fund is audited, and it is found that a loan arrangement is not in the best interests of the members of the SMSF, your fund may be labelled ‘non-complying’ by the ATO. This means the SMSF could lose up to half of its assets, and fund members could face serious penalties. 

This is why it is best to speak to a financial adviser or an SMSF professional before you draft any loan arrangements on behalf of the SMSF.

Frequently asked questions

What is a draw down?

The transfer of money from a lending institution to a borrower. In a typical home loan, the funds are drawn down all at once in order to buy the property. In a construction loan, the money is drawn down in several stages to pay the builders as they progress through each phase of the project. In a line of credit loan, you can draw down money up to a limit based on your loan’s available equity.

How much money can I borrow for a home loan?

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

What is equity and home equity?

The percentage of a property effectively ‘owned’ by the borrower, equity is calculated by subtracting the amount currently owing on a mortgage from the property’s current value. As you pay back your mortgage’s principal, your home equity increases. Equity can be affected by changes in market value or improvements to your property.

What is a valuation and valuation fee?

A valuation is an assessment of what your home is worth, calculated by a professional valuer. A valuation report is typically required whenever a property is bought, sold or refinanced. The valuation fee is paid to cover the cost of preparing a valuation report.

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

What is the Rate Guarantee?

The Rate Guarantee is RateCity putting its money where its mouth is. We believe that too many Australians are paying too much for their home loans. We’re so confident we can help Aussies save money, if we can’t beat your current rate, we’ll give you a $100 gift card.*

There are three reasons it pays to check your rate with the RateCity Rate Guarantee:

  • You can find out how much you could save on your home loan by switching to a loan with a lower interest rate
  • If we can’t beat your current rate, you can claim a $100 gift card with our Rate Guarantee*
  • Everyone who checks their home loan will be entered in the draw for a chance to win $1 million!^

Who can enter?

Any Australian resident who is over 18 and currently has a personal home loan is eligible for our Rate Guarantee. See terms and conditions.

How will Real Time Ratings��_��__��_��___��_��__��_��____��_��__��_��___��_��__��_��______ help me find a new home loan?

The home loan market is complex. With almost 4,000 different loans on offer, it’s becoming increasingly difficult to work out which loans work for you.

That’s where Real Time RatingsTM can help. Our system automatically filters out loans that don’t fit your requirements and ranks the remaining loans based on your individual loan requirements and preferences.

Best of all, the ratings are calculated in real time so you know you’re getting the most current information.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

How can I negotiate a better home loan rate?

Negotiating with your bank can seem like a daunting task but if you have been a loyal customer with plenty of equity built up then you hold more power than you think. It’s highly likely your current lender won’t want to let your business go without a fight so if you do your research and find out what other banks are offering new customers you might be able to negotiate a reduction in interest rate, or a reduction in fees with your existing lender.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

What is a guarantor?

A guarantor is someone who provides a legally binding promise that they will pay off a mortgage if the principal borrower fails to do so.

Often, guarantors are parents in a solid financial position, while the principal borrower is a child in a weaker financial position who is struggling to enter the property market.

Lenders usually regard borrowers as less risky when they have a guarantor – and therefore may charge lower interest rates or even approve mortgages they would have otherwise rejected.

However, if the borrower falls behind on their repayments, the lender might chase the guarantor for payment. In some circumstances, the lender might even seize and sell the guarantor’s property to recoup their money.

What is the average annual percentage rate?

Also known as the comparison rate, or sometimes the ‘true rate’ of a loan, the average annual percentage rate (AAPR) is used to indicate the overall cost of a loan after considering all the fees, charges and other factors, such as introductory offers and honeymoon rates.

The AAPR is calculated based on a standardised loan amount and loan term, and doesn’t include any extra non-standard charges.

How do I know if I have to pay LMI?

Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.

How much money can I borrow for a home loan?

Tip: You can use RateCity how much can I borrow calculator to get a quick answer.

How much money you can borrow for a home loan will depend on a number of factors including your employment status, your income (and your partner’s income if you are taking out a joint loan), the size of your deposit, your living expenses and any other debt you might hold, including credit cards. 

A good place to start is to work out how much you can afford to make in monthly repayments, factoring in a buffer of at least 2 – 3 per cent to allow for interest rate rises along the way. You’ll also need to factor in additional costs that come with purchasing a property such as stamp duty, legal fees, building inspections, strata or council fees.

If you are planning on renting the property, you can factor in the expected rental income to help offset the mortgage, but again it’s prudent to add a significant buffer to allow for rental management fees, maintenance costs and short periods of no rental income when tenants move out. It’s also wise to factor in changes in personal circumstances – the typical home loan lasts for around 30 years and a lot can happen between now and then.

You couldn’t beat my current rate – how do I claim my reward?

If we can’t beat your current home loan rate, you can claim your $100 gift card by confirming your home loan details with us.*

To do this, on your results page you’ll need to securely upload a bank statement or similar home loan document that can be used to confirm the home loan details you provided. We’ll keep your information private and confidential and only use your document to confirm your entry.

How can I calculate interest on my home loan?

You can calculate the total interest you will pay over the life of your loan by using a mortgage calculator. The calculator will estimate your repayments based on the amount you want to borrow, the interest rate, the length of your loan, whether you are an owner-occupier or an investor and whether you plan to pay ‘principal and interest’ or ‘interest-only’.

If you are buying a new home, the calculator will also help you work out how much you’ll need to pay in stamp duty and other related costs.

What happens when you default on your mortgage?

A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

You may also want to talk to a financial counsellor.