What is Pension Mortgage Protection?

Pension mortgage protection

Pension mortgage protection secured by repayment of the loan from the tax-free cash option available from a pension scheme at retirement.

Life assurance cover should be arranged on the mortgage. The sum assured under such a policy gradually decreases as the loan is being repaid; it therefore keeps the cost of the life cover to a minimum. An interest only mortgage where the capital is paid off through the proceeds of a lump sum from a personal pension. The arrangement provides for a pension after the mortgage is redeemed.

Repayment mortgage

On a repayment mortgage the monthly premium pays off both the interest on the loan, and some of the capital, so that the capital amount is gradually decreasing. This is the most popular mortgage and is also known as an annuity mortgage. Your monthly repayments cover the interest due on your borrowings, plus a portion of the actual amount borrowed or “principal”.

Pension mortgage 

Pension mortgage is an interest only mortgage which is supported by a Personal Pension Plan on which Interest only is paid to the lender and in addition premiums are paid into a Personal Pension Plan. Pension mortgage plan is designed to pay a tax-free lump sum on retirement in addition to a monthly pension income. It is the lump sum that is used to repay the mortgage debt. The advantage of this type of repayment method is that the pension contributions attract tax relief at the saver's highest rate of tax.

Tax and Pension Mortgage Protection

A pension mortgage allows a tax free consolidated amount and a monthly taxed income on retirement. The mortgage term for pension mortgage is usually 10-25 years and every month during this term, a payment is made which pays the interest of the loan. The monthly payment also makes contribution to a pension plan.  The pension fund that is build during the loan term finally helps to repay the mortgage. If invested responsibly the pension fund can grow reasonably well to leave extra cash for your personal usage.

Tax relief on mortgage interest, commercial or residential, is maximized as no capital repayments are made during the loan term.

Pension Mortgage

Pension Mortgage is highly tax-efficient and life assurance cover is provided but a pension mortgage is not suitable for everyone. With a pension mortgage an interest only loan is taken out. The contributions that are concurrently being paid into a personal pension scheme or an employer’s pension scheme can be used instead of the personal pension.