A pension mortgage may seem lucrative at the first sight. However, they seldom are, if the customers who took pension mortgage are to be believed.
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 mortgages.
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 to use.
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 other resources.
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.
10 Great E-Commerce Businesses You Can Start Now If you've been thinking of starting a business on the web but you're not sure what type of business to start then this article is for you. You could be wasting ...
Non-Compete Agreement Basics So you just purchased a business or you are about to. What do you do if you want the current business owner not to compete with you after he gets all your money...
Tips for Getting Your Home Loan Approved Home Loan Tip #1 Pay Your Bills: It is very important that you always pay your bills on time and never miss a payment...
Making a Great First Impression First impressions are vitally important to anyone seeking a job. Why? Because once that first impression is made, everything else that follows is not as signi...
Being a Great Boss Are you a great boss or one that employees love to hate. Being an effective leader doesn't really take a lot of effort.
How to Survive Long Distance Relationships Long distance relationships require special skills to keep the connection strong and the communication flowing between the couple. The good news is that overcom...
My Golden Gym "Don't accept your dog's admiration as conclusive evidence that you are wonderful." -- Ann Landers A year ago, almost to the day, I had an epiphany while exerc...
5 Steps to Successful Property Investment Successful property investment requires a disciplined process which can be repeated time and time again to add to a growing portfolio.
Guitar Practice - Make It Your Priority! All great guitarists have this one thing in common- they made guitar pracitice a priority! So, get yourself started in the same direction by keeping these thing...
FSBO Wisconsin - Madison and More Once considered a bit of a backwater state, many Americans are reconsidering the virtues of living in the State of Wisconsin. Here's a primer on Wisconsin real ...
Finding Your Zone You hear about it all the time, that 'zone' where athletes excel with apparently little or no effort. We all have a talent within us that we are meant to hone a...
Ultram Story: Keeping Pain Control Under Control It's surprising how clearly we can recall getting hurt. Years later, we can recount our first fall from a too-tempting tree, a bee-sting, the birth of a child. ...
Clear Your Acne - Naturally! Most people who suffer from acne go out and spend good money on common over-the-counter acne treatment products. The truth is, most of these products are full o...
Evolution Simplified and Factual Creationists interpret the Bible's story of creation literally. They believe that the universe and all that is in it have been recently created by divine inter...
Golf Industry Insights There are many insights learned in the process of entering the golf industry and they are listed herein.
Do You Know What a Didgeridoo Is? Do you know what a didgeridoo is? Do you want to do or learn something different? Find out about it and do it on the Web.
Brainstorm Ever lost for ideas while working in a group? One of the most often-used technique for generating many ideas is Brainstorming. Alex Osborn, a partner in an adve...
Print this page