Pension powered home loans

Pension backed lending is a phenomenon of financing your home through your retirement fund rather than through a mortgage bond. A pension supported housing loan is an alternative way to fund any aspect of ones home.The pension or provident fund benefit due to an employee can be used as security against the loan without eroding the retirement benefit.The amount borrowed is guaranteed against the fund.This means that the employees pension or provident fund value is only affected in exceptional circumstances.

One of the fundamental prerequisites with this loan is that a client needs to be a full-time employee contributing to a retirement fund.The fund and employer must have signed a surety agreement with Absa and affordability and credit worthiness was also taken into consideration. An applicant will require sufficient equity fund benefits over the term to be used as collateral.

This loan facility works within the confines of the law as the Pension Funds Act empowers pension funds to furnish guarantees to secure housing loans granted to members by third parties like banks. Every month employees contribute to the fund for their retirement, the fund uses their savings to provide a loan guarantee, money is deducted from their wages every month to repay their pension supported housing loan, the loan has to be repaid in full before normal retirement age or if the employee leaves the fund.

The following all fall under housing purposes under which a pension powered home loan can be obtained.This includes buying an existing home, redeeming an existing loan for housing purposes, building a new home and improving an existing home.The property must be owned by the employee and must be used as the normal residence of the recipient employee or dependants.

Financial institutions which offer this kind of loan in South Africa include Standard Bank and Absa.