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A pension mortgage may seem lucrative at the first sight. However,
they seldom are, if the customers who took pension mortgage are to
Nevertheless, before delving into the ill consequences of the mortgage, let
us observe why pension mortgages seem lucrative. The most eye-catching
feature of pension mortgages, which lures people, is that the pension
mortgage requires to be paid out of the pension amount, which one receives
on retirement. This is the feature, which drives people to go for pension
While in most of the mortgages, the customer would have to pay the full repayment
amount himself; in pension mortgage, he gets assistance from the
government, though not directly. To every 78p, which a person contributes
to the pension fund, the government contributes 22p (This is for a basic
rate taxpayer. In case of those who are high rate taxpayers, the ratio changes
to 60:40. This means that for every 60p contributed by the customer, governments
share is 40p). Therefore, a customer is actually paying just 78 and 60 percent
respectively. Besides, the customer is also getting tax relief for paying
into the pension plan.
People normally do not like to burden their present life. Their optimism
assures them that their future will be secure. Pension mortgage
is basically an interest only mortgage. This means that they will have to
pay significantly less on the mortgage as they are paying only the interest.
People who desire more of immediate relief shall be pleased with the idea
of paying less.
However, they have to pay the mortgage amount drawn. At the end of the term
of repayment of the pension mortgage, the principal amount will remain
unaffected. This is because all through the period of repayment the customer
has been paying just the interest. This principal amount will have to be
repaid with the help of pension. Normally 25% of the pension amount is available
in cash. This may be used to pay the pension mortgage.
Taking these into account, pension mortgages seem to be the perfect mortgage.
Neither is the customer forced into paying more on the monthly installment,
nor does he face any difficulty in the final repayment.
But, what of the life after the pension mortgage is paid. Is
the life ahead as smooth as the repayment? No, it is not. You have retired
and have lost a source of income. You are not in the prime of age to device
new sources of income. You need something to rely upon once you retire. Utilizing
cash from pension fund for paying a pension mortgage will be
inappropriate. This reduces the amount of pension available for the customer
Another feature, which can be seen as exploitative, is that one cannot go
for full and final repayment until the age of 50. This is because a person
is not authorized to use any part of the pension fund before they reach the
age of 50. Therefore, one will be able to repay the pension mortgage
before maturity only out of other resources.
Yet another feature of pension mortgage, which will give you goose
bumps, is that there is no guarantee of the pension fund being able to pay
the pension mortgage. A pension fund is an investment linked to the stock
market. The amount available on the pension fund will depend on the whims
of the stock market. Thus, there can be a scenario where the lump sum received
through pension is not able to pay the pension mortgage in
full. The borrower in such cases may be called upon to meet the deficit through
A similar scenario may occur when the borrower is not able to pay into the
pension fund because of unemployment or death. The house will be repossessed
to pay off the pension mortgage. Taking a life assurance policy can be a
counteractive measure. This will help pay off the pension mortgage at the
time of repayment.
There are numerous lenders in the UK offering pension mortgages. Many of
the lenders are available online. After having screened the lenders and making
a list of few lenders, it will be good to contact the lenders personally.
Before taking a pension mortgage one must be extra vigilant. A pension mortgage
can endanger your after retirement life. Unbiased and professional advice
on the viability of pension mortgage for your individual case will be beneficial.
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