Pension linked mortgages

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Pension Linked Mortgages

This is a guide to taking out a pension-linked mortgage in the UK. If you would like to get a free pension linked mortgage quote, please take a moment to fill out our enquiry form.

Pension linked mortgages are one form of interest-only mortgage. With a pension-linked mortgage, the borrower usually pays a monthly contribution into a pension fund, and pays premiums to a life assurance scheme. When the borrower reaches retirement, the cash lump sum repays the outstanding balance on the mortgage.

Taking out a pension-linked mortgage can be extremely tax efficient, and this is their key advantage. The pension holder is eligible for tax relief on both pension premiums and life assurance included in the pension. Any capital gains from investing the contributions are also likely to be tax-free. However, without an understanding of the pensions market or the guidance of a professional in this field, pension-linked mortgages can be complicated and hard to negotiate.

In the past, pension-linked mortgages have only been suitable for high earners on large annual wages. Pension-linked mortgages do have many disadvantages. For instance, you will receive less upon your retirement. The benefits for yourself and your dependents could be lessened if a lump sum is used to pay off the mortgage.

Pension-linked mortgages need careful monitoring to make sure that the mortgage can be repaid and ample funds for retirement remain. The charges for pensions have been high in the past, although they are decreasing. Furthermore, the high premiums and inflexibility of pension-linked mortgages may put many borrowers off.

For further information on pension-linked mortgages, or to contact one of our advisors, please fill out our quick enquiry form.

For pension information, personal pensions, stakeholder pensions, self invested personal pensions.