Mortgage Information - Pensions

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Pension Mortgages

A pension Mortgage is highly tax-efficient and life assurance cover is provided, however a pension mortgage is not suitable for everyone. With a pension mortgage an interest only loan is taken out.

The contributions that are concurrently being paid into a personal pension scheme, or an employers pension scheme can be used instead of the personal pension. At retirement the tax-free lump sum that may be taken from the pensions scheme is used to pay off the mortgage.

The plan holder can then draw a pension from the balance of the fund. This product, which tends to be used by the self-employed, we highly recommend you take advice from a qualified financial adviser. Please call 0845 108 0505 for FREE and impartial advice or fill in our quick enquiry form and an advice will come to your home for a no obligation quote.

There are a number of tax advantages with a pension mortgage, as the payments into the pension plan qualify for tax relief at the basic rate on payment. Those in the top rate band currently 40% may claim higher rate tax relief on pension contribution. If life cover is required a term insurance policy can be linked to the pension plan, which will also qualify for tax relief at the top rate on your premiums.

However there are also many disadvantages associated to this type of mortgage, including the fact that should you join a pension scheme at work or you become unemployed, then you may no longer be eligible to make contributions to the pension scheme. Therefore, another means of building up the capital is required in order to pay off the mortgage.

Attempting to use a financial tool to meet two objectives can and will cause problems. In the case of a pension linked mortgage you are trying to pay off your mortgage and provide an income at retirement.

The pension plan causes conflict as it reduces the scope of building up actual retirement income.

Advantages

If the proceeds of the plans exceed the amount required to repay the mortgage, then this is received as a cash lump sum by the borrower.

Some plans are tax-efficient.

Disadvantages

If the proceeds of the repayment vehicle do not achieve the amount expected, then there could be a shortfall. The borrower remains liable for any shortfall on the mortgage hence the outstanding balance will need to be paid off from other resources. We advice you to regularly check the policy fund. If the plan is not reaching its expected target, we recommend that you invest in another product to cover any anticipated shortfall.

Cashing in the plans early may result in financial penalties so always check first. These will have been provided for in the initial agreement documents. In addition the lender has no way of tracking some of the more modern repayment vehicles, such as an ISA, which will result in some instances where a borrower lets an investment lapse forgetting or not realizing it to be used to pay off the mortgage we recommend you talk to a financial advice at least once every year to keep up to date. Otherwise situations could result where there is no method of paying off the mortgage and the lender will only become aware at the end of the mortgage term.

Get a FREE mortgage quote online and find the best pension Mortgage, buy to let mortgage, remortgage deals and special offers from the UK's top lenders using our mortgage calculator.

However, we would strongly recommend that you do NOT try to arrange a pension mortgage yourself on-line. Instead fill in our brief enquiry form and one of our financial experts will email or telephone you to provide you with your FREE, no obligation quote.

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