Are home loans the only way to pay for property?

For most South Africans, being able to pay for property requires substantial financial assistance

You could easily assume that a home loan is the only sufficient means to finance property in most cases, and you wouldn’t be wrong.

According to Vanashree Naidoo, product head at FNB Secured Lending, “A home loan is the cheapest form of long-term finance to wholly or partly finance a property.”

Naidoo does, however, state that a home loan isn’t the only solution. She offers a list of alternative means that you could explore when you’re on the hunt for a home.

READ MORE: This is what you need to know about home loans

What are the alternatives to paying off your home?

Naidoo says, “You can fully or partly finance a property using one of the following options. These can also be used in conjunction with a home loan to finance the costs associated with a property, such as transfer duty, bond registration fees, or a deposit.”

The options Naidoo notes are as follows.

Pension-backed home loan

A pension-backed home loan, as per the Pension Funds Act 19(5)(a) and 37D, is an alternative form of housing finance where the loan is secured by your retirement fund savings. The repayment term of this product, as with a home loan, is up to 30 years.

Securities-based lending

By using your investment portfolio as security, you can gain quick access to affordable finance without liquidating your portfolio. This type of financing is generally not as competitively priced as a home loan, but it’s cheaper than using unsecured credit.

The downside is that it’s usually repayable within three years, unless it’s a secured revolving facility that has no fixed repayment term. The latter solution, however, is limited to smaller loan sizes.

READ MORE: Is a home loan a great savings tool?

Mixed collateral lending

You can use a combination of a home loan and pension-backed or securities-based lending as additional security to finance a property.

Finance Linked Individual Subsidy Programme (FLISP)

FLISP is specifically intended for customers who earn between R3,501 and R22,000 per month, and whose income is inadequate to qualify for a home loan, but exceeds the maximum limit necessary to access the government's “free basic house” subsidy. Only first-time homebuyers are eligible to apply.

This type of loan can be used to reduce the initial home loan amount, or bridge the shortfall between the loan for which the customer qualifies and the property price, reducing the eventual home loan instalment to an affordable amount. Depending on your monthly income, the FLISP subsidy ranges from R27,960 to R121,626.

Naidoo adds, “Due to the size of a loan usually required to finance a property, either a home loan or a pension-backed loan is probably the most affordable financing solution from a cashflow perspective. This is due to the associated lower interest rates and longer repayment terms.”

Are you looking for a personal loan perhaps to finance your property? You can apply today.