How workers can use their retirement savings to obtain a residential mortgage
Many employees aspire to own homes before leaving their jobs, but the inability to provide equity contribution to access a mortgage loan is a significant constraint for most. To address this, the Pension Reform Act 2014 allows Retirement Savings Account (RSA) holders to use part of their retirement savings as equity contributions for residential mortgages. Last year, the National Pension Commission (PenCom) issued guidelines on how RSA holders can access their accounts to pay equity contributions for residential mortgages. However, there are application, documentation, and remittance processes that RSA holders must follow.
According to the Director-General of PenCom, Mrs. Aisha Dahir-Umar, interested applicants must obtain an offer letter for the property from the owner or approved agent and approach a mortgage lender to fill out an application form. The lender reviews the application form and verifies the genuineness of the property offer. If the property offer letter is confirmed, the applicants approach their PFA and request their RSA Statement to access 25% of their RSA balance for payment of equity contribution. Couples are allowed to apply if they meet the eligibility criteria. In such a case, each party shall apply to their PFAs with copies of the verified property offer letter.
The PFA issues a duly endorsed RSA statement to the applicant, which the applicant forwards to the mortgage lender. The mortgage lender verifies if 25% of the applicant’s RSA balance will be sufficient as an equity contribution. If 25% of the RSA balance is acceptable as equity contribution, the mortgage lender issues a mortgage offer letter to the applicant. If 25% of the RSA balance is insufficient, the mortgage lender requests the payment of supplementary equity contribution from the applicant. Upon confirmation of the additional equity contribution payment and meeting other requirements, the mortgage lender offers a mortgage loan to the applicant.
Within two working days of issuing the mortgage offer letter to the applicant, the mortgage lender must forward copies of the mortgage offer letter, the mortgage application form, and the verified property offer letter to the applicant’s PFA. Additionally, the mortgage lender provides evidence of payment of the difference where 25% of RSA cannot cover the needed equity. On receiving a mortgage offer letter, the applicant must approach their PFAs to request payment of their equity contribution. The PFA computes and validates that the requested amount is not more than 25% of the RSA balance. In a joint application, each party shall apply to their PFA with a copy of the mortgage offer letter. The PFA forwards the applications that pass its review to the Commission within two working days of successful review and validation. If the PFA identifies any exceptions or discrepancies during the documentation review, the PFA communicates the exceptions to the mortgage lender within two working days.
The Commission reviews the applications submitted by PFAs and approves or rejects them. If the Commission declines to approve an application, it communicates the reason(s) for its decision to the PFA. Upon receiving the Commission’s approval, the PFA issues a payment instruction to its Pension Fund Custodian (PFC) to remit the approved amount to the mortgage lender within two working days. The PFC must pay the approved amount for equity contribution to the mortgage lender within two working days of receiving the PFA’s instruction. PFAs are obligated to ensure that the applications for equity contribution by RSA holders meet the requirements of the guidelines and maintain a record of applications received. PFAs and PFCs are also required to make periodic reports and returns to the Commission on payments made for equity contributions for residential mortgages. RSA holders should contact their PFAs for more information and guidance, and PenCom is committed to effectively regulating and supervising the pension industry.