How building societies treat pension mortgages

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How building societies treat pension mortgages


If you were not linking your pension to a mortgage, you could save for your retirement by a series of single premiums, which could be adjusted each year in the light of your income earned. This is obviously more flexible, and it has another (hidden) advantage that the rate of commission payable to intermediaries -brokers or financial advisers -is low compared to the regular premium plans, where in the first year of a plan it can be as high as 60%.

6 What if you fall ill?

If you are a self-employed person and your income falls because you can't work, you'll have enough problems as it is. And even if you have covered this risk by taking out a permanent health insurance policy (to pay an income should you be ill for any extended period of time) you'll be liable to face the same problems that we considered under question 4. Payments under a PHI policy do not normally count as `earned income' and so you won't be able to qualify for tax relief on your pension plan.

An absolute necessity, if you are going to use a pension plan for your mortgage, is to choose one that incorporates a 'waiver of premium' benefit: that is, an insurance policy that will continue paying your pension premiums if you are ill.


More on 2nd mortgages

Why should you pay extra commission to the life companies?


Of course, this would make life difficult for you whatever sort of mortgage you've got; but there are a couple of extra points to be borne in mind with a pension mortgage which could make it especially nasty.

Firstly, unlike mortgage interest and life assurance premiums, which you pay net of the applicable rate of tax relief, pension premiums are paid gross; you receive the benefit in the shape of less tax to pay at the end of your financial year. For many self-employed people, this could mean a delay of up to 14 to 20 months. Simply in terms of cash flow, then, this could be a problem.

Secondly, you have to remember that there are limits to the amounts that you can put into pension . . .... see: Why should you pay extra commission to the life companies?


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