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The lowdown on pension-backed home loans – Guidance on access for your clients

Amid house prizes going down and interest rates at a real low, many individuals might consider buying their first home, or scaling up or down. This relates to finding a property, making an offer to purchase, and obtaining a home loan. Many banks don’t offer 100% loans and will insist that the buyer puts down some amount as a deposit, especially in the tricky economic times we are experiencing. One way for buyers to do this may be via their retirement funds.

In a recent SAFM radio interview, Shameer Chothia, Consultant at Momentum Consultants and Actuaries, gives more clarity about pension-backed home loans.

According to Chothia some retirement funds offer pension-backed home loans to qualifying members who plan to use it for a primary residence. As a member, you can get access to a portion of your accumulated savings as a loan towards buying property or land, or to pay for transfer and bond registration costs.

He adds that pension-backed home loans offer numerous benefits:

Favourable interest rates
No bond registration costs
Low initiation and monthly fees
Instalments deducted directly from the member’s salary, with no debit order fees
Low risk of defaulting on the loan if you are employed and earning a salary

Chothia further explains that there are no tax implications as you are not taking money out of the fund, the fund only stands guarantee for the loan that you take out. To qualify for a pension-backed home loan you will go through the usual bank approval process and the same terms and conditions apply.

Furthermore, the pension-backed home loan can also be used by existing homeowners who want to make improvements to their properties to increase its value. As per the Pension Fund Act the loan can only be for improvements to your primary home.

Click here to listen to the radio interview that also highlights the current property dynamics.

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