{"id":1329,"date":"2017-03-29T12:40:24","date_gmt":"2017-03-29T10:40:24","guid":{"rendered":"https:\/\/www.namfisa.com.na\/educates\/?p=1329"},"modified":"2025-07-17T09:44:37","modified_gmt":"2025-07-17T07:44:37","slug":"pension-backed-housing-loans-how-do-they-work","status":"publish","type":"post","link":"https:\/\/www.namfisa.com.na\/educates\/pension-backed-housing-loans-how-do-they-work\/","title":{"rendered":"Pension Backed Housing Loans – how do they work?"},"content":{"rendered":"\t\t
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<\/h3><\/span><\/div>
Pension Backed Housing Loans (PBHLs) have become\na very important part of the pension fund industry as\nthey give members the chance to use their pension\nbenefits\/savings (fund credit) to buy immovable property\nsuch as houses, flats, apartments or land, or to make\nrenovations to their homes. PBHLs have become popular in\nNamibia and are mostly being used for home improvement\nprojects (i.e. renovations), rather than for buying new homes,\nbecause the size of the loans can be small. Do members of\npension funds really understand how PBHLs work?\n\n

\n\nIn order to provide members with more information, in this\nissue we discuss the following:<\/div><\/div>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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  • <\/span> Laws and purposes of these loans;<\/li>
  • <\/span> Conditions for a loan to be granted;<\/li>
  • <\/span>Types of PBHLs;<\/li>
  • <\/span>Practicalities;<\/li>
  • <\/span>Some important considerations; and<\/li>
  • <\/span>Observations by the Regulator.<\/li><\/ul><\/div>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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    Laws and purposes of these loans<\/h3><\/span><\/div>
    PBHLs are allowed and managed in terms of Section 19(5) of\nthe Pension Funds Act of 1956 (Act no. 24 of 1956) (\u201cthe Act\u201d).\nThe Act states that a loan that is given to a member through a\npension fund, is an investment made by the fund in the member\nto enable him\/her to: \u2013\nPay-off or settle a loan that\u2019s been granted to the member by\nanother party, such as a bank or building society, for immovable\nproperty. Immovable property refers to assets such as houses,\nflats, apartments or land on which a house or a flat or an\napartment will be built;\nBuy a dwelling (which is another word for a house, a flat or\nan apartment etc.) or land on which it\u2019s expected that a dwelling\nwill be built by the member or his\/her spouse; and\nMake renovations, additions or alterations to the member\u2019s\nexisting house.\nThis means that the Pension Funds Act allows funds to give\nloans to its members, but only for the reasons given. When a\nmember applies for a PBHL, s\/he must know that it must be\nrepaid to the fund. These loans are given for housing purposes\nonly and may not be used as a way to allow members to abuse\/\naccess their retirement benefits early. These loans must be\nrepaid in full by the time the member retires so that the final\nretirement benefit is replaced to its full value. It must be noted\nthat the Board of Trustees of a fund have a responsibility to\nprevent or report any abuses of these loans to NAMFISA.\nConditions for a loan to be granted\nA member can be given financial assistance in the form of\na \u201cdirect loan\u201d from a retirement fund or a guarantee (i.e.\n\u201cindirect loan\u201d) to secure a third-party loan. A guarantee is a\npromise by the fund to pay for your home-loan if you fail to pay\nit yourself.<\/div><\/div>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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    <\/h3><\/span><\/div>
    Direct and indirect loans are allowed only if:-<\/div><\/div>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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    • <\/span>The property belongs to the member or to his or her spouse;<\/li>
    • <\/span>That the house must be occupied by the member or the dependents of the member;<\/li>
    • <\/span>The loan that you receive is not more than 90% of the value of the property or 90% of the member\u2019s savings in the fund, whichever is lesser.<\/li><\/ul><\/div>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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      One Loan at a Time\u2014Know the Rules Before You Apply<\/h4><\/div>
      Let's Expand on the last point , The loan that you receive is not more than 90% of the value\nof the property or 90% of the member\u2019s savings in the fund,\nwhichever is lesser. So if the price of the house you want is\nN$500,000 but you have only saved N$400,000; the maximum\nloan you can get from the fund is 90% of N$400,000 which is\nN$360,000.\nShould the member be applying for a loan to buy land, the\nmember must have every intention to build a house on it, in\nfuture, which will be occupied by the member and\/or his\/her\ndependents. Circular no. PI\/PF\/3\/2003 states that a fund may\nnot grant more than one loan to the same member at a time.<\/div><\/div>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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      <\/h3><\/span><\/div>
      So if a member already owes the fund for a housing loan, s\/\nhe cannot be allowed to get another loan. PBHLs can only be\ngranted for housing related costs and cannot be used for any\nother purposes such as buying of cars, cattle or paying off living\nexpenses\/bills. The loan amount must be repaid over a period of\nnot more than 30 years. The maximum allowed repayment term\ndiffers from fund to fund, so please make sure you know what\nthe maximum repayment period is that your fund allows.\n

      \n\nA direct housing loan scheme is one where a fund grants\na member a housing loan directly from the assets of the fund.\nDirect loans are granted to members (by a fund) which are\ntaken from the members\u2019 savings in the fund. For example,\nif a member has a fund credit of N$50,000 and s\/he borrows\nN$20,000 for renovations. This would mean that the members\nbenefit in the fund will be reduced by the loan amount and paid\nover to the member which ultimately reduces the assets of the\nFund. The interest rate payable for such loans as prescribed by\nthe Act equals to the Namibian Prime rate plus 4%. At present,\nthe prime rate is 10.75%, which means a member will have\nto repay this loan at an interest rate of 14.75% over the term\nof the loan. On a monthly basis the employer will deduct the\nmonthly instalments payable for the loan from the member\u2019s\nmonthly salary and these are then paid to the fund on behalf of\nthe member.\n

      \nThere are also funds that have implemented \u201cindirect\u201d\nhousing loan schemes for their members. Indirect loans are\nhousing loans granted by a third party usually a bank to a\nmember. The member provides his\/her savings within the fund\nas security for the loan. So should it happen that the member\nfails to repay the loan or leaves the fund, the bank would call\non the guarantee issued to settle the loan and the outstanding\namount would then be taken from the member\u2019s fund credit\nbefore the benefit is paid out to the member should s\/he be\nleaving the fund. Similar to direct loans, on a monthly basis\nthe employer will deduct the monthly instalments payable for\nthe loan from the member\u2019s monthly salary and these are then\npaid to the third party (e.g. a bank or building society) on behalf\nof the member. The interest rate for indirect loans are usually\nlinked to the prime rate, however, funds are able to negotiate\nfavourable rates with the bank.\n<\/div><\/div>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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      Should you wish to apply for a PBHL:<\/h4><\/span><\/div>
      Firstly, find out whether your fund makes provision for such loans to be granted to members.\nSecondly, if your fund does have a housing scheme, you need\nto find out the amount members are allowed to borrow. Amounts\nthat members are allowed to borrow differ from fund to fund but\ncannot be more than the maximum in the Act.\nSome funds allow their members to borrow only up to 50%\nof their savings, however,as mentioned thisdiffers from fund to\nfund. For example, if your fund allows you to borrow up to 50%\nof your fund credit for a housing loan and you have a fund credit\nof N$200,000, it would mean that you may only borrow up to\nN$100,000 for housing purposes.\nOnce you know the position, you will most probably be given\nmore information in terms of what steps to follow for you to be\ngranted a loan.\nUsually a member will be required to complete a PBHL\napplication form as well as submit quotations for the work to be\ndone on the house or else a deed of purchase \/ sale agreement\nentered into by the member and the entity selling them the\nhouse or land. Should you want to renovate your house, you will\nneed to provide proof that the property belongs to you or your\nspouse and that you, your spouse or your dependents live in it.<\/div><\/div>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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      <\/h3><\/span><\/div>
      Some important considerations<\/span>Should a member decide to borrow money from his\/her fund\nfor housing purposes, please check the latest value of your\ncurrent fund credit as well as read up on the rules of your fund\u2019s\nhousing loan scheme so that you confirm that the maximum\nallowable loan amount that you want to borrow will be enough\nfor whatever you want to do (i.e. to purchase a residence or\nland or for renovations). Members are cautioned to carefully\nconsider the following before applying for a home loan:

      \n\nType of loan to apply for \u2013 A member needs to decide which\ntype of loan they wish to apply for from the fund. A member\nshould look at the type of loan that gives him the best benefits\nfor the best price. A member will therefore need to investigate\nand find out what the interest rate payable is for each type of\nhousing loan before an application is made.

      \nAffordability \u2013 Looking at your monthly and\/or yearly budget\nmay help you understand just how much you can afford to make\nin loan repayments, therefore helping you decide on a loan\namount and term of the loan that will suit you.\nMake sure that you can afford the monthly repayments\nthroughout the loan\u2019s term, especially if interest rates are to go\nup. Remember that interest rates do not always stay the same\nand if they are to go up, you will have to pay more for your loan\neach month.\n

      \nAdditional expenses \u2013 In addition to the monthly loan\nrepayment, expenses such as travelling costs, school fees,\nPension Backed\nHousing Loans \u2013\ninsurance premiums to cover damages or loss to the structure\nof the house, the cost of maintaining the house, municipal and\nother costs such as rates and taxes, water, electricity, security\netc., all need to be considered. It is important for a member to\nbudget properly to lessen unwanted surprises.\n

      \nCurrent financial situation \u2013 A member should always\nconsider their current financial situation before applying for a\nhousing loan. It is easy to apply for a loan while forgetting your\nfuture plans such as getting married, the costs of taking care of\nthe baby that\u2019s on the way or unexpected costs for events such\nas death in the family or other loans that might put pressure on\nyou financially. You will have to look at your finances as a whole\nand ensure that should you apply for a loan there is some room\nfor unexpected costs or living expenses.\n

      \nLength or term of the loan \u2013 The term of the loan also plays\na very important part in determining the total cost of the loan\nas well as the repayment amount you will have to make on a\nmonthly basis. Please note that the longer the term, the more\nthe loan will cost as well as the lower the monthly repayment\/\ninstallment will be. Should you choose to pay off the loan in a\nshorter term\/period, the cost of the loan will be much less than\nthat of a longer term. In addition, the shorter the term, the\nhigher the monthly repayment will be.\n

      \nInterest rates \u2013 Members need to pay attention to current\ninterest rates as well as future expected movements in interest\nrates.\nShould the interest rate go up, the member\u2019s repayment\namount will also increase thereby putting more pressure on\nthe member\u2019s monthly income and spending budget. If they\ndecrease then the member\u2019s repayment amount will also\ndecrease giving some relief to the member.<\/div><\/div>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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      Observations By the Regulator<\/h4><\/span><\/div>
      Should you wish to apply for a PBHL:<\/span>Some abuses have come to the Registrar\u2019s attention and\nmembers are cautioned to please observe the law as the\nRegistrar will not hesitate to investigate and report any\nabuses to the relevant authorities. Some of the abuses noted\ninclude:\n

      \nMembers using PBHLs to settle loans that are for purposes\nother than for housing e.g. settling of car and other debts. PBHLs\nare not to be used for purposes other than that of housing as per\nthe Act. These loans must be used for housing purposes only. A\nmember is not allowed to use the loan to buy food, cars, livestock\nor any other purpose. Neither should the loan be granted to a\nmember for speculation in the property \/ housing market when\nthe member already has a house or houses.\n

      \nThe awarding of PBHLs by funds to members for the\nacquisition of holiday cottages or accommodation for children\nat university. This does not conform to the purposes of acquiring\na house as envisaged by the Act. These loans must be granted for\ngenuine housing needs of the members; and\nThe granting of PBHLs by funds to members where the\nproperties concerned do not belong to the members or their\nspouses or are not occupied by the member or dependents of\nthe member;\nIt must be noted that the regulator can and will use its\npowers to bring civil action to the perpetrators so as to ensure\ncompliance.<\/div><\/div>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"

      Pension Backed Housing Loans (PBHLs) have become a very important part of the pension fund industry as they give members the chance to use their pension benefits\/savings (fund credit) to<\/p>\n","protected":false},"author":1,"featured_media":1331,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_eb_attr":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_EventAllDay":false,"_EventTimezone":"","_EventStartDate":"","_EventEndDate":"","_EventStartDateUTC":"","_EventEndDateUTC":"","_EventShowMap":false,"_EventShowMapLink":false,"_EventURL":"","_EventCost":"","_EventCostDescription":"","_EventCurrencySymbol":"","_EventCurrencyCode":"","_EventCurrencyPosition":"","_EventDateTimeSeparator":"","_EventTimeRangeSeparator":"","_EventOrganizerID":[],"_EventVenueID":[],"_OrganizerEmail":"","_OrganizerPhone":"","_OrganizerWebsite":"","_VenueAddress":"","_VenueCity":"","_VenueCountry":"","_VenueProvince":"","_VenueState":"","_VenueZip":"","_VenuePhone":"","_VenueURL":"","_VenueStateProvince":"","_VenueLat":"","_VenueLng":"","_VenueShowMap":false,"_VenueShowMapLink":false,"footnotes":""},"categories":[426],"tags":[],"class_list":["post-1329","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-pension-funds"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.namfisa.com.na\/educates\/wp-json\/wp\/v2\/posts\/1329","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.namfisa.com.na\/educates\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.namfisa.com.na\/educates\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.namfisa.com.na\/educates\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.namfisa.com.na\/educates\/wp-json\/wp\/v2\/comments?post=1329"}],"version-history":[{"count":9,"href":"https:\/\/www.namfisa.com.na\/educates\/wp-json\/wp\/v2\/posts\/1329\/revisions"}],"predecessor-version":[{"id":35509,"href":"https:\/\/www.namfisa.com.na\/educates\/wp-json\/wp\/v2\/posts\/1329\/revisions\/35509"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.namfisa.com.na\/educates\/wp-json\/wp\/v2\/media\/1331"}],"wp:attachment":[{"href":"https:\/\/www.namfisa.com.na\/educates\/wp-json\/wp\/v2\/media?parent=1329"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.namfisa.com.na\/educates\/wp-json\/wp\/v2\/categories?post=1329"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.namfisa.com.na\/educates\/wp-json\/wp\/v2\/tags?post=1329"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}