The National Pension Commission (PenCom) has released a guideline specifying how RSA account holders can access part of their RSA balances as equity for residential mortgages.
The guidelines are in line with the provisions of Section 89 (2) of the Pension Reform Act (PRA 2014), which allows RSA holders to utilize part of their retirement savings as equity contributions to secure a residential mortgage.
Limit for equity contribution: According to PenCom, the maximum amount RSA holders can apply as equity contribution for a residential mortgage is 25% of the total RSA balance as of the date of application. This will be irrespective of the percentage of equity contribution required by the Mortgage Lender.
- However, in situations where the value of 25% of the RSA balance is more than the required equity contribution, it added that the RSA holder can only access an amount equivalent to the equity contribution required by the Mortgage Lender.
- Also, In the case whereby the value of 25% of the RSA is lower than the equity contribution required by the Mortgage Lender, the RSA holder would need to deposit the difference with the Mortgage Lender before 25% of the RSA balance can be applied as equity contribution.
Eligibility Criteria for RSA Holders: Applicant must be active in service either as a salaried employee or as a self-employed person. Also, the application for equity contribution for residential mortgage shall be in person and not by proxy.
- Applicants must have updated their records through the RSA data recapture exercise if registered before 1 July 2019.
- For equity contribution for a residential mortgage, an RSA holder can only access his/her RSA once.
- Applicants must have an Offer Letter for the property duly signed by the property owner and verified by the Mortgage Lender.
- the applicant must have both employer and employee’s mandatory contributions for a cumulative minimum period of 60 months before the application for the RSA holder to access his/her RSA balance for equity contribution for a residential mortgage. Notably, applicants may utilize the contingent portion of his/her Voluntary Contribution (VC) for equity contribution, in line with the Voluntary Contribution Guidelines under the CPS.
- A Micro Pension Contributor is also eligible to access his/her RSA balance towards the payment of equity contribution for a residential mortgage provided he/she has made contributions for a minimum of 60 months before his/her application.
- 4.1.10 RSA Holders who had accessed their RSA balances due to loss of employment before the issuance of these Guidelines are eligible to access their RSAs for equity contribution, provided their RSAs had received employer and employee contributions for a minimum of 60 months from the date of the first contribution.
- 4.1.11 RSA holders that have utilized 25% of their RSA balance for equity contribution for a residential mortgage are also eligible for payment of 25% of their RSA for loss of job in line with the provision of Section 7(2) of PRA 2014.
- RSA Holders that have less than 3 years to retirement will not eligible to use a portion of their RSA balances as equity contributions for a residential mortgage.
- Existing Retirees on CPS and exempted persons under the PRA 2014 are not eligible to use their RSA balances for payment of equity contributions for Residential mortgages.
- 4.1.14 Married couples, who are RSA holders, are eligible to make a joint application, subject to individually satisfying the eligibility requirements.
How RSA holders can apply
Step 1: Applicant obtain a property offer letter from the property owner or approved agent and approaches a Mortgage Lender
Step 2: Applicant fills out an application for a mortgage, which is provided by the Mortgage Lender, and attaches the property offer letter. The application form will contain minimum information such as the Full name of the RSA holder, PIN of the RSA holder, Name of the Mortgage Lender, Value of the property, etc.
Step 3: After confirmation of the property offered by the mortgage lender, the applicant approaches his/her PFA and requests his/her RSA Statement to access the 25% of his/her RSA balance for payment of equity contribution – In a joint application, each party will need to apply to their respective PFA’s with copies of the verified property offer letter.
Step 4 : The PFA issues a duly endorsed RSA statement to the applicant, which the applicant forwards to his/her Mortgage Lender and updates the record on Applications for Equity Contribution for Residential Mortgage upon issuing the RSA Statement to the RSA holder.
Step 5: The Mortgage Lender verifies if 25% of the applicant’s RSA balance will be sufficient as an equity contribution. Where 25% of the RSA balance is sufficient as equity contribution, the Mortgage Lender issues a mortgage offer letter to the applicant but where 25% of the RSA balance is not sufficient, the Mortgage Lender requests for the payment of supplementary equity contribution from the applicant(s).
Step 6: The Mortgage Lender issues a mortgage offer to the applicant after confirming payment of supplementary equity contribution.
Step 7: The Mortgage Lender forwards a copy of the mortgage offer letter and the under-listed document’s additional information to the applicant(s) PFA within two working days of the issuance of the mortgage offer letter to the applicant.
Step 8 : The applicant may after two working days of receiving his/her mortgage offer letter, approach his/her PFA to request for payment of his/her Equity Contribution for Residential Mortgage.
Step 9 : The applicant shall obtain and fill out an Application Form, with indemnity to the PFA, for the payment of his/her Equity Contribution for the Residential Mortgage. In a joint application, each party shall apply to their respective PFA with a copy of the mortgage offer letter.
Step 10 : The PFA reviews the application form and the supporting documents received from the Mortgage Lender for completeness using a checklist of requirements within two working days.
Step 11: Upon successful completion of the documentation review, the PFA updates the applicant’s Mandate File within two working days. If any exceptions or discrepancies are identified during the documentation review, the PFA shall communicate the exceptions to the Mortgage Lender within two working days of identifying such exceptions.
Step 12: The PFA computes and validates that the requested amount is not more than 25% of his/her RSA Balance.
Step 13 : The PFA processes the application and forward same to the Commission within two working days of successful documentation review and awaits the approval of equity contribution and notification.
Interesting read and useful information.
For someone wishing to collect a loan or specifically accessing 25% of RSA, then obviously that person is in need. Therefore the clause that the RSA holder cannot access the entire 25% of RSA if the equity contribution from the mortgage lender is less than 25% RSA is not to the advantage of the RSA holder. A situation where the RSA holder can apply the entire 25% of their RSA to purchase a property or pay the deposit/equity makes more sense.
Thank you for this important observation.
This policy is fundamentally flawed as it mainly goes to favor mortgage lenders.
Why can’t I assess the 25% and pay the balance from my personal savings rather than from the mortgage lenders who are offering very exorbitant mortgage rates?
What if the property I’m acquiring is not through a mortgage lender? What happens then?