South Africa
What are Pension-Backed Home Loans?
Loans & Credit

Pension-backed home loans: What you need to know

A pension-backed home loan (as per the Pension Funds Act 19 (5) (a) and 37D) is an alternative form of housing finance where the loan is secured by your retirement fund savings instead of a mortgage bond.

Are you ready to enter the property market but not sure whether you will qualify for a home loan? There may be another solution. If you’ve built up a substantial retirement fund over the years, you could use these funds as a guarantee on your home loan.

How do Pension-Backed Housing Loans work?

The Pension Funds Act allows for a pension-backed home loan against your retirement savings. An agreement between the pension fund and your employer will be established.

The loan can be used to buy vacant land, build a house, improve your current home, use as a deposit or towards bond registration costs and fees. You must also be the owner of the property.

What is the loan term?

The maximum loan term is up to 30 years; however, this is dependent on individual fund rules. 

How much can be borrowed?

  • The loan amount depends on how much you have saved in your retirement fund, and how much you can afford
  • The loan value you borrow against your retirement savings is based on the rules as set out by the individual fund

What are the pros and cons of pension-backed home loans?

The advantages of a pension-backed home loan:

  • You can use the loan with a regular home loan as a deposit on a property
  • You can use a pension-backed loan to buy vacant land, build a house or improve your current home
  • You receive favourable interest rates and fees on your loan which is negotiated with the fund
  • Monthly loan repayments are conveniently deducted from your salary or wages
  • If the prime rate changes your loan term will adjust, rather than your repayment amount, unless you are too close to normal retirement age

The limitations of a pension-backed home loan:

  • The loan can only be used to buy, improve or repair residential property, or to pay off an existing home loan
  • You must own the property to qualify for a pension-backed loan
  • The loan needs to be repaid by the  normal retirement age, as set out by the fund
  • If you fail to repay the loan, or exit the fund, your retirement savings will be used to settle the loan, which may have tax implications

Pension-Backed Loans are provided to all employees of participating funds and/or employees irresepctive of income bracket. 

Next step

To apply online for a pension-backed home loan, visit our home loans page, or head to the property tips section of Community to interact with other Standard Bank customers and bank consultants.