When news broke that self-managed super funds could no longer borrow to buy residential Investment property, many trustees with existing loans felt a jolt of anxiety. Would they have to sell? Repay early? Restructure in a hurry? For the great majority, the answer is reassuring: the change is forward-looking and does not disturb loans already in place. But the detail matters, because how trustees manage an existing arrangement from here can still affect its standing. This article explains what actually happens to loans a fund already has under the rules that took effect on 10 August 2026.

The headline: existing loans continue

The reform restricts new limited recourse borrowing arrangements for residential investment property from 10 August 2026. Crucially, it does not require existing arrangements to be unwound. Residential LRBAs entered into before that date are generally protected, and a fund that already holds a residential property under an LRBA can continue to hold it, service the loan, and run the arrangement to its natural conclusion.

That grandfathering is deliberate. Forcing funds to sell property or repay loans on short notice would have caused real harm, including fire sales and crystallised losses, so the legislation draws a clean line at the commencement date. Trustees with a compliant pre-existing arrangement are, in the ordinary course, not affected by the change at all.

Refinancing is generally permitted

A common worry is whether refinancing an existing Loan would trigger the new restriction. On current guidance, refinancing an existing pre-10 August 2026 residential LRBA is generally treated as a continuation of the existing arrangement rather than a new one, so a fund can typically move its loan to a different lender without falling foul of the change.

That protection matters practically. Without it, an existing borrower could be trapped with their current lender, who would have little incentive to offer a competitive rate to a customer who cannot leave. The ability to refinance preserves some bargaining power. As always, though, the specifics of any refinance should be checked, because not every change dressed up as a refinance is a like-for-like continuation.

Where care is still needed

The grandfathering protects the existing arrangement, but it is not a licence to expand it. Using a refinance to draw down additional funds, to acquire a different or additional property, or to change the asset held under the arrangement can move the transaction outside the protected category and into territory the new rules restrict. The safe path is a genuine like-for-like refinance of the same asset.

The ordinary rules that always governed LRBAs also continue to apply. The single acquirable asset rule, the limits on improving the property with borrowed money, and the arm's length requirements for related-party loans have not gone away. An existing arrangement must keep meeting those conditions, and a poorly documented related-party loan can create non-arm's length income problems independent of the new residential restriction.

A clearly hypothetical example

Consider a hypothetical fund that bought a residential rental in 2022 under an LRBA and still owes on the loan. Under the new rules, nothing forces a change: the fund keeps the property, keeps paying the loan, and can refinance to a cheaper lender if a like-for-like deal is available. It is squarely within the grandfathered category.

Now vary the facts. If the same fund tried to use a refinance to release Equity and buy a second residential property, that new borrowing would run into the post-10 August restriction, because it is new borrowing for residential investment property. The example shows how the protection attaches to continuing the existing arrangement, not to using it as a springboard for further residential gearing.

What existing borrowers should check

Trustees with an existing LRBA should confirm a few things rather than assume. First, that the arrangement was validly entered into before 10 August 2026 and is properly documented. Second, that any related-party loan is on genuine arm's length terms consistent with the ATO's safe harbour guidance, so the fund's income is not treated as non-arm's length.

Third, if refinancing is on the cards, that it is a true continuation of the same arrangement and the same asset, not a disguised expansion. Getting these points checked by a specialist is cheap insurance compared with the cost of discovering a problem at audit or on sale. This is general information, not advice about any particular loan.

The bigger picture for existing arrangements

For the existing stock of SMSF residential property loans, the practical message is stability. The change reshapes what new funds can do; it does not retrospectively penalise trustees who borrowed under the old rules. Those trustees can plan around their arrangement with reasonable confidence that it will be allowed to run its course.

What has changed is the exit landscape. When an existing property is eventually sold, a fund cannot simply replace it with another geared residential purchase, because that door is now closed to new borrowing. That is worth factoring into longer-term planning, so that decisions about holding or selling account for the fact that the strategy cannot easily be repeated. Licensed advice helps trustees weigh those choices for their own fund.

It is also worth keeping the change in proportion. For the large number of funds that already hold their residential property under a compliant, well-documented arrangement, the day-to-day reality is unchanged: the property stays, the loan continues, and the fund carries on. The anxiety that greeted the announcement was understandable, but for existing borrowers it was largely misplaced. The trustees who most need to think carefully are those contemplating new residential gearing, not those simply continuing an arrangement they entered into in good faith under the rules that applied at the time.

Practical takeaway

Existing SMSF residential property loans entered into before 10 August 2026 are generally grandfathered: funds are not forced to sell or repay, and a genuine like-for-like refinance is usually permitted. The care points are not expanding the arrangement, keeping any related-party loan on arm's length terms, and remembering that a sold property cannot be replaced with new residential gearing. Trustees should confirm their arrangement's status and take specialist advice before refinancing or restructuring.