Pension-backed Housing Loan
OMEGS members have access to a pension-backed housing loan facility offered by Standard Bank.
WHAT DOES THIS MEAN FOR ME?
- You are able to take out a loan from Standard Bank to be used specifically for housing purposes related to your primary residence. For example, you could use the loan to buy a house, build, or do renovations or home improvements. There are strict criteria to ensure the loan is used for housing purposes only. Standard Bank will consider all of the usual credit affordability requirements to ensure you can afford to repay the loan.
- The surety for the loan will be backed by a portion of your OMEGS Fund Credit (i.e. the pot of money you have saved in your retirement fund). This means that, if you were to stop paying your loan repayments, Standard Bank could claim the outstanding amount from your retirement fund savings.
- You would have to settle your pension-backed housing loan if you leave Old Mutual’s employment. If you aren’t able to quickly refinance the loan at this point (e.g. with a normal bond from a bank), this might mean that a large portion of your retirement fund savings is used to settle the loan. This could be very detrimental, because you may have to pay tax on this amount, and you will be giving up some of your hard-earned retirement savings.
- NOTE: It can take several weeks from starting the application process until any loan amount is paid (assuming it is approved).
HOW BIG IS THE LOAN?
- The minimum loan amount is R5 000.
- The maximum pension-backed loan amount is dependent on:
- Your ability to repay your loan as guided by the National Credit Act;
- How much you have saved in your retirement fund (OMEGS) when you take out the loan;
- The tax payable if you were to withdraw from the retirement fund; and
- The maximum pension backed housing loan benefit permitted by the bank and Old Mutual SuperFund.
- For members younger than 51, this is 70% of the after-tax* amount you would receive from the retirement fund as a withdrawal benefit if you resigned (estimated as 44.8% of your Member Account Balance).
- For members 51 and older, this is 25% of the after-tax* amount you would receive from the retirement fund as a withdrawal benefit if you resigned (estimated as 16.0% of your Member Account Balance).
* The bank uses the maximum tax rate applicable to retirement fund withdrawals (36%) for this calculation
HOW DOES THE STANDARD BANK PENSION-BACKED HOUSING LOAN COMPARE AGAINST A NORMAL BOND FROM A BANK?
A pension-backed housing loan has some advantages and some disadvantages relative to a normal bond from a bank. The table below summarises some of the differences.
|Factor||Standard Bank Pension Backed Housing Loan for OMEGS members||Ordinary bond from your bank|
|Interest Rate||Prime-1%||Depends on the value of the loan and the bank’s risk assessment. Typically Prime+0.5% to Prime+1.5%.|
|Period of the loan||Maximum of 30 years or your normal retirement age (61), whichever is sooner||Typically 20 to 30 years.|
|Initial costs||Loan initiation fee of R495||Bond initiation and registration costs charged by the bank, the attorneys and the Deeds Office.|
|Monthly costs||Administration fee of R25.95 per month||Depends on the bank.|
|Repayments||Repayments are deducted directly from your salary and paid over to Standard Bank||Repayments are usually a debit order from your bank account.|
|What happens when you change jobs?||You would have to settle your pension-backed housing loan if you leave Old Mutual’s employment. If you aren’t able to quickly refinance the loan, this might mean that a large portion of your retirement fund savings are used to settle the loan.
This could be very detrimental, because you may have to pay tax on this amount, and you will be giving up some of your hard-earned retirement savings.
|Your bond can continue even if you change jobs.|
FREQUENTLY ASKED QUESTIONS
Why does OMEGS not offer a pension-backed loan from Nedbank?
- Nedbank currently does not offer new pension-backed loans in the market.
- At present, there are only two banks (Standard Bank and First National Bank) which are open to new business for pension-backed loans. We are currently exploring the option to also make pension-backed loans from FNB available to OMEGS members.
Why is the maximum amount of the loan limited?
- The bank wants to protect itself against the risk of any loss. The loan amount is therefore limited to the amount that the bank and Old Mutual SuperFund thinks would be available under a “worst case scenario”.
- The following factors are considered:
- Your OMEGS Fund Credit can fluctuate as investment markets move up and down.
If you defaulted on your loan repayments, tax would be payable on the amount used to settle your outstanding loan.