Pension mortgages – this is an interesting type
of mortgage but is complex. As with endowment mortgages
you pay the interest to the lender each month. However,
instead of repaying capital you invest it in your pension.
The idea behind this is that if, for example you are
a higher rate tax payer (40%), for every £1 you
pay into your pension the government pays in an additional
40p. Whereas for every £1 you pay off your mortgage,
which is paid after tax you have to earn £1.40
ish. You get the picture… these mortgages allow
you to take advantage of a tax loophole. When you retire
you use your tax free cash lump sum to repay your mortgage.
There are a number of things you should consider with
these types of mortgages;
Money paid into a pension can’t be taken out
until you reach 50 and even then it is not easy until
you have retired
If you have a stakeholder or money purchase pension
your money is invested in stocks and shares etc which
means you can lose money as well as gain.
There are set limits in which you can pay money into
your pension set by the inland revenue