Can I borrow funds from my RA to renovate an unbonded property?

Thank you for your question. Governed by the Pension Funds Act, a retirement annuity (RA) is an individual retirement fund available to anyone who wants to save for their retirement in a tax-efficient manner.

In terms of legislation, members of a retirement annuity fund may not access their invested capital before age 55, subject to very few exceptions. For the purposes of answering your question, therefore, we have assumed that you are currently below this age limit.

As mentioned, the earliest age that you will be able to access your funds will be age 55, with the exceptions being in the case of ill-health and financial emigration. It is therefore not possible for you to borrow funds from your retirement annuity to pay for your home renovations.

As a retirement annuity investor, you would have enjoyed a tax deduction on the contributions you have made towards your RA to date and would have also benefitted from the additional tax benefits of having your funds housed in this type of investment vehicle. The government has made these significant tax advantages available to investors to ensure that South Africans save toward their retirement, thereby alleviating the burden on the state when they retire. Therefore, it makes sense that legislation would not permit early access to these funds to be used on something other than your retirement.

You have mentioned that you do not have a home loan and we are therefore assuming that your property is fully paid for and can be used as collateral when applying for a loan.

The interest charged on home loans is generally much more favourable than the interest charged on personal loans, and we therefore recommend that you consider the option of taking out a home loan to fund your renovations.

The most efficient way of applying for a home loan is by using a bond originator. When using a bond originator, they will help you prepare a single application which will then be submitted to a number of banks on your behalf. They will help you fix your credit score, put all the necessary documentation together, obtain pre-qualification, and secure the most favourable interest rate from among the banks applied to.

Remember, you do not need to pay the bond originator anything as they will be paid a commission by whichever bank you choose to implement your home loan through.

Your bond originator will try and find the most favourable interest rates on your behalf, keeping in mind that the interest rate quoted by the financing institution will depend largely on the risk that you pose – taking into account your earnings, debt levels, credit history, net worth, and how well you have managed your finances.

When taking out a home loan, bear in mind that prime lending rates have just been increased and are set to increase a few more times during the course of 2022 and 2023. As such, be absolutely sure that you are able to afford your loan repayments. Ideally, set your bond repayment higher than the minimum amount required to provide a financial buffer should interest rates increase at some point in the future.

Where debt is incurred to achieve positive, longer-term goals, it can be considered ‘good debt’ – such as in your case where you are borrowing money to renovate your home for business purposes. Having said that, good debt should be affordable and the repayments must be within your means, keeping in mind that any late or missed payments will have a detrimental effect on your credit score. We wish you everything of the best with your home loan application and the renovation of your property.