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Flexible Mortgages - Offering Relief from the Fixed
Mortgage
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.
James Taylor holds a Master's degree in Commerce from JNU he
is working as financial consultant for http://www.chanceforloans.co.uk
To find a personal loan and mortgageloan that best suits your
needs visit http://www.chanceforloans.co.uk
 MORE RESOURCES updated Mon. September / 06 / 2010
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