Pension Mortgages
What is a Pension Mortgage?
A Pension Mortgage can only be funded from a personal pension policy whereby you only make regular payments on interest with the capital being repaid by part of your pension fund at the end of the term. If in the future you decide to become a member of a company pension scheme, you would have to stop the personal pension plan and arrange an alternative way to repay your mortgage.
Pension Mortgages
The Pension Mortgage is an investment mortgage and each month you just pay the interest back so the amount of the loan remains the same till the end of the term when the full amount is payable from the tax free lump sum you receive on retirement. As pension rules state that you are not allowed to touch your funds until you are 50 then obviously you will not be able to pay off the mortgage until then. A Pension Mortgage is not flexible.
Advantages of a pension mortgage
The main advantage of a pension mortgage is that it is very tax efficient so this type of mortgage is useful for cash rich people with potentially large pension funds, also people who just want interest free mortgages. A pension mortgage could be advantagous for self-employed people, if they have a good knowledge of their pension product and are making regular contributions into it.
- Tax efficient
- Good for cash rich people with large pension funds
- Interest free mortgage
Risks of offsetting you mortgage against a pension?
One of the biggest risks with a mortgage that is paid off by your pension scheme, is that if you become unemployed and unable to pay into a pension scheme your mortgage repayment could be considerably less or non-existant to what you had hoped for. Another risk is that a pension fund is another form of investing money against the stocks and shares markets and if not checked or frequently managed, may not reach its expected target or even worse, become financially worthless and lose your hard built investment. The promised tax free lump sum might not be sufficient to pay off the mortgage. Another point to consider is that by using a large amount of your pension fund to repay your mortgage will leave you less funds when you retire.
- Pensions can be risky investments unless properly managed.
- Unemployment could affect personal pension policy
- Not guaranteed lump sum, fluctuates with pension worth
- Your pension as income to live off, will be significantly reduced against paying off mortgage.
Last Tips about Pension Mortgage advice?
If you do decide to take out a Pension Mortgage because of the tax advantages, it is very important to search around and find a qualified financial adviser with good investment experience. They may also advise another product as opposed to a pension mortgage that could be more suitable and less risk intensive.
Contact us about Pension Mortgages.
Either fill out the form on the right or request a call back below to discuss your options with regard to pension mortgages and perhaps better products.