Refinancing an SMSF loan means entering into a new loan contract for the same asset, with the same or a different lender.
The rate structure you choose during an SMSF loan refinance changes how your fund responds to rate movements, revert rates, and cash flow planning over the remainder of the loan term. Fixed and variable rates behave differently under limited recourse borrowing arrangements, and the compliance obligations attached to each structure affect more than just the interest you pay. Trustees refinancing in Perth need to account for how rate selection interacts with LRBA rules, offset account eligibility, and lender appetite for SMSF lending.
Fixed Rate SMSF Refinance: When the Lock-In Ends
A fixed rate on an SMSF loan refinance holds the interest rate constant for a set term, typically between one and five years. During that period, repayments remain unchanged regardless of Reserve Bank movements.
Consider a trustee refinancing a Scarborough residential property held in their SMSF. The existing loan reverts to a variable rate above 7 per cent after the fixed period expires. Refinancing to a new three-year fixed rate at 6.2 per cent locks in certainty for repayments funded from rental income and concessional contributions. The fund avoids the risk of rate increases during that window, but it also forfeits the benefit of any rate cuts.
Fixed rate SMSF loans do not permit offset accounts during the fixed period. Offset accounts are only allowed when offered by an authorised deposit-taking institution, and most ADI lenders restrict offsets to variable rate products. If your SMSF strategy relies on parking rental income or voluntary contributions in an offset to reduce interest, a fixed rate removes that option until the fixed term concludes.
Break costs apply if you repay a fixed rate SMSF loan early or refinance again before the term ends. The calculation depends on the difference between your fixed rate and the lender's current wholesale cost of funds for the remaining period. A trustee who refinances into a three-year fixed rate and then wants to switch lenders 18 months later will pay break costs that can run into thousands of dollars, particularly if rates have fallen since the refinance settled.
Variable Rate SMSF Refinance: Access and Flexibility
A variable rate on an SMSF loan refinance moves in line with the lender's standard SMSF variable rate, which tracks but does not mirror the Reserve Bank cash rate. Repayments increase or decrease as the rate changes.
Variable rate SMSF loans allow offset accounts when the lender is an ADI. A fund refinancing a commercial property in Osborne Park with consistent rental income can place that income into an offset account, reducing the interest charged on the outstanding loan balance without making additional repayments. The offset operates as a transaction account, so the trustee retains access to the funds for expenses such as repairs, insurance, or land tax while still reducing interest.
Variable rates generally sit higher than short-term fixed rates but lower than long-term fixed rates. The absence of break costs means the trustee can refinance again, make lump sum repayments, or repay the loan in full without penalty. This matters for funds that expect irregular contribution inflows, such as a member approaching retirement who plans to make a large concessional contribution once a property sells or a business dividend is received.
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Revert Rates and Why They Trigger SMSF Refinancing
When a fixed rate term on an SMSF loan expires, the loan typically reverts to the lender's standard variable rate for SMSF lending. Revert rates are consistently higher than introductory or refinance rates offered to new borrowers, often by 0.5 to 1.5 percentage points.
A trustee with an SMSF residential loan that reverts from a two-year fixed rate at 5.9 per cent to a variable rate at 7.4 per cent sees monthly repayments increase immediately. Refinancing to a new lender at a lower rate, whether fixed or variable, resets the rate to a more competitive level and avoids the revert rate penalty. The refinance must still meet all LRBA compliance requirements, including limited recourse, holding trust structure, and arm's length terms if the new lender is a related party.
Trustees refinancing SMSF loans entered into before 10 August 2026 are not subject to the business real property restriction, even if the refinance settles after that date. A residential investment property in Mount Hawthorn financed under an LRBA in early 2025 can be refinanced in late 2026 without requiring the property to meet the business real property test. The original LRBA date controls the compliance framework.
Split Rate Structures in SMSF Refinancing
Some SMSF lenders allow a split rate structure, where part of the loan is fixed and part remains variable. A trustee refinancing a loan balance might allocate 60 per cent to a three-year fixed rate and 40 per cent to a variable rate with an offset account.
The fixed portion provides stability for the majority of the loan, while the variable portion allows the trustee to use an offset and make additional repayments without incurring break costs. The split reduces exposure to rate movements without eliminating flexibility. Each portion of the loan operates under its own rate and terms, and the trustee nominates the allocation at the time of refinance.
Split structures suit funds with predictable rental income but irregular contribution timing. A trustee expecting a $50,000 concessional contribution within 18 months can direct that contribution toward the variable portion of the loan, reducing the balance and the interest charged without triggering penalties.
Rate Selection and LRBA Compliance During Refinance
Refinancing an SMSF loan creates a new borrowing arrangement, and the new loan must meet the LRBA requirements that applied at the time of refinancing. The asset must transfer directly to the new holding trust if the lender requires a new trust structure. The SMSF trustee cannot take temporary legal title during the transfer.
Lenders assess SMSF commercial loan refinance applications differently to residential refinances, particularly around loan-to-value ratios and rate margins. A commercial property refinance in Joondalup might attract a rate 0.3 to 0.6 percentage points higher than a residential refinance at the same LVR, and the fixed rate terms available are often shorter. Variable rate products for commercial SMSF lending are more common and typically include offset accounts when the lender is an ADI.
Related party lenders must charge an arm's length interest rate, whether the loan is fixed or variable. The rate must align with reasonably objective and supportable data, such as the Reserve Bank's Indicator Lending Rates for similar borrowing. A related party cannot offer a fixed rate significantly below market rates without triggering non-arm's length income treatment, which taxes the fund's income from the property at 45 per cent rather than the concessional 15 per cent rate.
Rate Lock Timing and Settlement Risk in SMSF Refinancing
A fixed rate on an SMSF refinance is typically locked at the time of formal approval, not at application. Rate lock periods range from 30 to 90 days depending on the lender. If settlement extends beyond the lock period, the rate may revert to the lender's current fixed rate, which could be higher or lower than the locked rate.
SMSF refinance settlements involve additional documentation compared to standard home loan refinances, including trustee resolutions, holding trust deeds, and LRBA compliance certificates. Delays in preparing or signing documents can push settlement beyond the rate lock window. A trustee refinancing in Perth should allow at least 45 days from formal approval to settlement, particularly if the property is commercial or the lender requires a new holding trust structure.
Variable rate refinances do not carry rate lock risk because the rate applies from the settlement date. The rate may move between application and settlement, but the trustee is not locked into a rate that no longer reflects market conditions.
Call one of our team or book an appointment at a time that works for you to discuss which rate structure aligns with your fund's cash flow, contribution strategy, and compliance framework.
Frequently Asked Questions
Can I refinance an SMSF loan from fixed to variable without penalty?
You can refinance from fixed to variable, but break costs will apply if you refinance before the fixed term expires. The break cost depends on the difference between your fixed rate and the lender's current wholesale cost of funds for the remaining fixed period.
Do variable rate SMSF loans allow offset accounts?
Variable rate SMSF loans allow offset accounts when the lender is an authorised deposit-taking institution. Offset accounts from non-ADI lenders are not permitted under LRBA rules because they are not bank deposits.
Does refinancing an SMSF loan create a new LRBA?
Yes, refinancing an SMSF loan is considered entering into a new loan contract and creates a new borrowing arrangement. The new loan must meet the LRBA requirements that applied at the time of refinancing.
What happens to an SMSF loan when the fixed rate period ends?
When a fixed rate period ends, the SMSF loan typically reverts to the lender's standard variable rate for SMSF lending. Revert rates are usually higher than introductory or refinance rates, which often prompts trustees to refinance to a lower rate.
Can I split an SMSF refinance between fixed and variable rates?
Some SMSF lenders allow split rate structures where part of the loan is fixed and part is variable. This provides rate certainty on the fixed portion while maintaining offset account access and repayment flexibility on the variable portion.
