Pensions Aid in Property Loans - 06-09-09

June 9 - With banks demanding higher and higher deposits from their customers as a prerequisite to offering loan in order to purchase a home, many couples find that they simply do not have the kind of money required and are left out of the property market yet another year.

In a bid to find a solution to help these customers, some banks have come up with the idea of offering the option of allowing them to borrow against pension funds as security for the deposit required.

For a house that costs R1 million, a minimum deposit of 10% will set the buyer back a whopping R100K - before the cost of any other fees are taken into account.

Naturally, the chances of the average person having that kind of money lying round is quite low, which is why borrowing against an established pension fund to make up the cost of the deposit may be a good idea.

Not every type of pension is acceptable to banks. In most cases, they will only consider good pension schemes or provident funds, and an important condition of the loan would be that it needs to be paid back before the customer retires or sells the property.

Another important thing to note is that borrowing against a pension fund is only for the purpose of buying a house where the customer intends living. It cannot be used to buy a second property to rent out, for example.

It is possible for couples to borrow against the pension fund of one of the spouses or both of them for extra collateral.

This type of option helps first time buyers realize their dreams of purchasing their own home, however, because it means tapping into an important source of income meant for later life, buyers are still advised to speak to financial experts to ensure that they are getting the most out of the situation at minimum risk to their future.