Drwabacks of having a mortgage

Required Reading


Drwabacks of having a mortgage

The drawbacks

You should have guessed they were coming! There are limitations to this way of going about things, and you should certainly think carefully before you proceed. The following questions are the ones that you will need to ask in order to play devil's advocate with yourself before deciding.

1 What about your old age?

Although you are allowed to change part of your pension savings for a cash sum, you're not forced to; if you do, it will mean a lower pension than you would otherwise have had.

Are you satisfied that you will still have enough to live on if you commit part of your pension savings, in advance, to paying off the mortgage?

What makes this question even more pertinent is the fact that the tax concessions on pension plans are not unlimited. Up to the age of 50, you may put only 17.5% of your 'net relevant earnings' (meaning, broadly, your income less trading expenses) into a pension plan. You may put in slightly more at older ages up to a maximum of 32.5% but this latter figure applies only if you're 74 and still working!

So don't think you can necessarily just shove enormous sums of money into your pension plan in the last few years before you retire, to make up for any shortfall.

How serious an aspect this will be for you will depend on a number of factors: your age at the moment, how much (if any) pension provision you have made to date, and how large a mortgage you intend to have.

As a rough guide, if you have entirely neglected to put anything aside in a pension (and have no deferred pension from companies you've worked for in the past) and are much over the age of 40, then you should really be thinking of putting as much as you possibly can into your pension plan from now on, with no mortgage debts to encumber it.

That is, if you want to have a reasonable pension at the end of the day.

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Endowment Mortgage Maturity

ake a look at the total 'estimated maturity value' of the two plans. The pension plan produces more than three times the value of the endowment policy in part to the favourable tax treatment of pension funds. So not only do you still have a cash surplus to spend, but also you've provided yourself with a pension of 112717 a year for life all for an extra 114.34 a month after tax.

So far, we have only been considering the position of a basic-rate taxpayer. If you are a higher-rate taxpayer, however, it gets even better. The pension premium of £172.99, which effectively costs the basic-rate taxpayer £151.10, costs the 0.6 taxpayer just 129.2 (the rest is tax relief). For the very high-rate taxpayer, therefore, running his . . .... see: Endowment Mortgage Maturity

Current Mortgage Offers

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    Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage. The overall cost for comparison is 7.9% APR. The actual rate available will depend upon your circumstances. Ask for a personalised illustration. There will be a fee for mortgage advice. The precise amount will depend upon your circumstances but our average fee is 2.36% of the loan value. We are authorised and regulated by the Financial Services Authority for regulated mortgage and non-investment insurance contracts.