How Workers Can Use Retirement Savings to Obtain Residential Mortgage

  The goal of many employees is to own residential homes before exiting active employment. However, a significant constraint for most employees is their inability to provide equity contribution to access a mortgage loan to own a house. Considering this, the Pension Reform Act 2014 (PRA 2014) made provision for Retirement Savings Account (RSA) holders to use part of their retirement savings as equity contributions for residential mortgages.

  In 2022, the National Pension Commission (PenCom) issued Guidelines on Accessing Retirement Savings Account (RSA) Balance towards Payment of Equity Contribution for Residential Mortgage by Retirement Savings Account (RSA) Holders. This article explains the application, documentation and remittance processes to follow by RSA holders desirous of accessing their accounts to pay equity contributions for residential mortgages.

  First, the Guidelines provide that an interested applicant 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 Mortgage Lender reviews the application form and verifies the genuineness of the property offer.

 The burden of due diligence is on the Mortgage Lender (The Mortgage Lender is a Commercial Bank or Primary Mortgage Bank licensed by the Central Bank of Nigeria to provide residential mortgages) to ensure that the property is genuine and has a valid valuation report. When the property offer letter is confirmed, the applicants approach their PFA and request their RSA Statement to access the 25% of their RSA balance for payment of equity contribution. Couples are allowed to apply if they both meet the eligibility criteria jointly. In such a case, each party shall apply to their respective PFAs with copies of the verified property offer letter.

  The PFA is required to issue a duly endorsed RSA statement to the applicant, which the applicant forwards to the Mortgage Lender. Upon receipt of the RSA statement, 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 acceptable as equity contribution, the Mortgage Lender issues a mortgage offer letter to the applicant. If, on the other hand, 25% of the RSA balance is insufficient, the Mortgage Lender is required to request the payment of supplementary equity contribution from the applicant. Upon confirmation of the additional equity contribution payment and meeting other requirements, the Mortgage Lender shall offer a mortgage loan to the applicant.

  Consequently, within two working days of issuing the mortgage offer letter to the applicant, the Mortgage Lender must forward to the applicant’s PFA copies of the mortgage offer letter, the mortgage application form, and the verified property offer letter. Additional information required includes the loan amount, equity contribution required, bank account details of the Mortgage Lender and indemnity by the Mortgage Lender to the PFA on the use of the equity contribution. In addition, the Mortgage Lender is also required to provide evidence of payment of difference where 25% of RSA cannot cover the needed equity.

  On receiving a mortgage offer letter, the applicant must approach his PFAs to request payment of his Equity Contribution. The applicant shall obtain and fill out an Application Form for 25% of his RSA balance and provide an indemnity to the PFA. The PFA also 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 respective PFA with a copy of the mortgage offer letter.

 The PFA shall forward all 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 shall communicate the exceptions to the Mortgage Lender within two working days.

 The Commission shall review all applications submitted by PFAs and approve or reject the applications. Where the Commission declines to approve an application, it shall communicate 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.

  Primarily, PFAs are obligated to ensure that all applications for equity contribution by RSA holders meet the requirement of the Guidelines. PFAs are also mandated to maintain a Record of Applications received from RSA holders for payment of equity contributions for residential mortgages. Additionally, for transparency and ease of supervision, PFAs and PFCs are required to make periodic reports and returns to the Commission on payments made in respect of equity contributions for residential mortgages.

  In conclusion, interested RSA holders should contact their PFAs for more information and guidance. PenCom remains committed to the effective regulation and supervision of the pension industry in Nigeria.