The word Mortgage is often used to refer Mortgage Loan for buying a real estate item from a lender; mostly a bank. Here we will discuss pension mortgages which are a common interest-only mortgage type mostly common in United Kingdom.
A Pension Mortgage borrower is only subject to a payment of interest only throughout the lifetime of mortgage. Does not it sound too good to be true? The fact is that all pension mortgages can be backed with an additional investment plan in the form of borrower’s personal pension; a stock market based investment subject to tax exemption and tax relief at the end of the retirement. To be precise, a pensioner will gain two things at the end of his retirement. Firstly, a lump sum handsome and tax free amount called personal pension, which is mostly used to pay off the mortgage at the end of the retirement. Secondly, a monthly taxable income which the pensioner might use for his survival for whatsoever life he has left! However, since the 2014 budget, the compulsory nature of buying an annuity with the remaining 75% is under scrutiny. Particularly, the rules for personal pensions & occupational money purchase schemes have seen a sea change!
Maybe a resurgence in pension mortgage will now be seen given the fact that someone can take the whole pension now as a lump sum, but subject to taxation.
Advantageous in Tax Free Income
The only advantage seen in pension mortgages is the tax exemption at the end of the retirement on personal pension but one only benefits from that if he falls under the higher end of taxable income. The lesser the income, the lower the tax exemption and benefit of a pension mortgage.
Given the pension amount inflates in the stock market and does not meet stock market bazaar nature, a pension mortgage might benefit the borrower at the end of the term. But the way stock market rates fluctuate nowadays, it is a tough call. Depending on your age, mortgage period can prove to be longer than expected, subjecting you to interest only payments for a longer than expected period. Also, age limit for pension mortgage is 60 years and above, during which your total mortgage debt remains the same.
More Options than Pension Mortgages
An interest-only pensioner mortgage is not the only choice open to you in retirement or as you edge closer to retirement. In fact if you do not have enough in your pension account to pay for your pension mortgage there is an option. You can enter into some of the retirement mortgage options like lifetime mortgage. This would help clear any outstanding shortfall if one existed.
A retirement mortgage such as the likes of Hodge Lifetime offer, leaves the payment until the end of your life or you move to a care facility. Interest still adds on to this type of loan; however, the payment is not made until the end for interest either. The way this works is by using the equity in your home. You can use this equity to pay off any existing mortgage that might have dried out your pension or will dry it out.
Under a lifetime mortgage you still obtain tax free cash. You can use this cash as you wish and you can always set up a savings account to help repay it in the end. The main importance is that this type of loan is set up for retirees. It is designed to ensure you can afford your home throughout your life and enjoy your retirement.
Pension Mortgages vs Equity Release
Pension mortgages have their uses. They are also harder and harder to find due to the troubling economic situation. Lifetime mortgages are becoming more common. They do not use a savings fund to make payments in the end, but you can always set up an account and let it grow interest.
With equity release you can be 55 or older. This can be advantageous if you are about to retire and still have a mortgage payment you wish to get rid of.
Pension mortgage options as you read above have to repaid usually by 60-70, which can mean you enter retirement with full repayment of the mortgage.
You have to decide what is right for you and your family. You may end up having to sell your home. The pension mortgage can help guarantee the home sale is the last resort where lifetime mortgages cannot.
From this end of the table, we can confidently suggest that opt for a pension mortgages only if you can constantly monitor your pension fund’s performance because at the end of the mortgage term your personal pension is your only source to pay off the mortgage and maintain a lifestyle during retirement.
If you are a resident in the London area then the www.LondonEquityRelease.com website might be of interest. Or if you’re interested in seeing the possibilities of equity release then we recommend visiting http://EquityReleases.com.
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