Pension Mortgages
A pension mortgage is a tax-efficient mortgage, but it does not suit everyone. You take out an interest-only loan and simultaneously pay into a personal (or stakeholder) pension. At retirement you can take part of the proceeds (currently 25 per cent) as a tax-free lump sum. The idea is that this lump sum will be used to pay off the mortgage.
Your payments into the pension plan qualify for tax relief at your top rate - no other mortgage has this advantage. If you need life cover, you can use a term insurance policy linked to the pension plan, which means you get tax relief at the top rate on your premiums.
You need to excersise caution with this method of mortgage repayment, as you are relying on one plan to provide two very different and important needs - a means of repaying your mortgage, and of building up a retirement income.
There's no guarantee that your pension fund will grow enough to provide the sum you need to repay your mortgage at the end of the term. You have to build up a fund that's four times the size of your mortgage in order to have a big enough tax-free lump to repay your mortgage. The amount you need to pay into your pension in order to do this can mean it's too expensive for a lot of people.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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The Financial Services Authority does not regulate some forms of Mortgage.
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