Endowment Mortgage Maturity

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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 -thanks 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 £112,717 a year for life -and 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 60% taxpayer just £129.20 (the rest is tax relief). For the very high-rate taxpayer, therefore, running his mortgage in this way is actually cheaper than a low-cost endowment, and yet it produces three times the benefit.

Table 19 provides another example of a pension mortgage plan, this time for a 'unit linked' plan at various rates of tax.

Table 19 The cost of a pension mortgage plan at varying tax rates

1 Male aged 40 next birthday, retiring at 65, with a £125,000 mortgage

(a) Basic-rate taxpayer

Mortgage interest

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Building Societies or Banks

Now the major building societies who were prepared to lend on this basis included the Halifax, Bristol & West, National & Provincial, Woolwich, Alliance, Anglia, Britannia, Gateway and Cheltenham & Gloucester.

The rate of interest charged on these sorts of loan is generally higher than on a straightforward repayment mortgage. Most of the societies charge their endowment rate is, 0.0025 to 0.005 above their 'base' rate. A few charge an extra 0.005 above that.

If you compare an endowment to a pension mortgage, two main factors stand out. The pension route is far more tax-efficient and offers better value because of this, but the figures involved are that much higher. Because of the rules on the amount that you can take as cash, compared to the . . .... see: Building Societies or Banks

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