Time right for LRBA refinancing

LRBA refinancing

SMSF practitioners should be looking at the interest rates on clients’ LRBAs as many may be suitable for refinancing at lower rates.

SMSFs with limited recourse borrowing arrangements (LRBA) should re-examine the current interest rate on their loan as many may be able to getter a better rate through refinancing, according to a non-bank lender.

Bluestone head of specialised distribution Richard Chesworth said the exit of the major banks from the LRBA market may have led SMSF practitioners to believe there were few options available, but the time was right to consider refinancing.

“There are older loans which are up for refinancing and SMSF advisers and accountants may be thinking that once the majors stepped out there is no longer a real market for LRBA loans, but there is actually an active market,” Chesworth told selfmanagedsuper.

“Bluestone is currently refinancing residential SMSF loans that are still in the mid 8 per cent interest rate range because they are on the lender’s back book or they have stepped out of the market, and we are refinancing those, dependent on how fast the rate cycles move, but at the moment in the low 6 per cent range.

“There is a 2 to 3 per cent margin and that is a huge refinancing opportunity that advisers and accountants are not looking at.”

He said some of the SMSF loans may not be very old and he was refinancing a loan that was previously refinanced in January this year at a rate that was more than 2 per cent lower than the rate offered at that time.

As such, he said there was an opportunity for advisers and accountants to further engage with mortgage brokers given they have different areas of expertise, but also licensing and advice conditions.

“When I am talking with mortgage brokers I point out they are licensed to talk credit, but not licensed to suggest setting up an SMSF or recommend property in that fund, which accountants and planners, who are not licensed to talk credit, can do,” he said.

“There is a need for brokers to speak to advisers and accountants to assist with the right credit solution and refinancing because more than 95 per cent of LRBAs relate back to property.

“It is also an opportunity for advisers because we are in volatile times with interest rates going up.

“If a client holds a property with a loan for a few years that might have been geared at 50 to 60 per cent, it has probably shifted from being positively geared to negatively geared in the current interest rate market.”

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