As of 2007, you can now effectively borrow within your superannuation. There is a minefield of rules and regulations that need to be adhered to but in essence it is possible and if done correctly, it can extremely beneficial.
Technically, you can borrow to purchase any asset within your super fund but the most common asset recently has been commercial or residential property.
The main differences between a super loan and a normal residential or home loan are;
- The interest rate is typically higher by approximately 1% (although this does change constantly)
- The loan is non-recourse which means the lender only has recourse over the one asset that is secured
You can still choose between interest only and P and I depending on which structure suits you best within you super fund.
An alternative strategy at the moment which gives you the most flexibility and reduces the interest rates and costs are a related party loan. This is where you, the member lends money as the bank to your superannuation fund. If you borrowed the money, this allows you to charge a lower interest rate than a super loan, or if you are using cash you can potentially not charge an interest cost at all. This area needs to be navigated very carefully to ensure you don’t breach any of the rules that govern your superannuation fund.
As with getting any loan, it is important that you get the right advice on the structure and costs to ensure it is the right strategy for you.