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  • FIRST POST
    • cyclistpete
    • By cyclistpete 9th Oct 16, 10:31 AM
    • 8Posts
    • 2Thanks
    cyclistpete
    Interest only mortgage and pension.
    • #1
    • 9th Oct 16, 10:31 AM
    Interest only mortgage and pension. 9th Oct 16 at 10:31 AM
    I'm considering replacing my capitol repayment mortgage with an interest only mortgage and then putting the difference in payments into my pension scheme. When I take my pension in 7 years I will use the tax free lump sum to pay off my mortgage.
    My logic is the difference between the low mortgage interest rate and the tax saving on my pension contribution should save me a considerable amount of money.
    This seems straight forward but am I missing something?
Page 1
    • zagubov
    • By zagubov 9th Oct 16, 10:40 AM
    • 13,427 Posts
    • 118,360 Thanks
    zagubov
    • #2
    • 9th Oct 16, 10:40 AM
    • #2
    • 9th Oct 16, 10:40 AM
    I'm not sure there's many interest-only mortgages left available, and I suspect the few that there are will will have extremely stringent criteria for acceptance. Assuming they'll accept pension lump sums as a redemption vehicle in the first place.

    Have you spoken to an IFA? You'd probably need one to find a mortgage provider that would do this for you, and they could check the numbers.

    Some more knowledgable posters will be along to give advice soon, but their advice won't come with the same authority and reliability as the IFA. Saving the few hundred quid of discussing this with a professional could be a real false economy.
    There is no honour to be had in not knowing a thing that can be known - Danny Baker
    • AnotherJoe
    • By AnotherJoe 9th Oct 16, 11:06 AM
    • 4,211 Posts
    • 4,227 Thanks
    AnotherJoe
    • #3
    • 9th Oct 16, 11:06 AM
    • #3
    • 9th Oct 16, 11:06 AM
    Is your intention to save the money as cash in your pension or would you put into investments?
    Are you a 40% or a 20% taxpayer?
    • Snakey
    • By Snakey 9th Oct 16, 11:14 AM
    • 884 Posts
    • 1,085 Thanks
    Snakey
    • #4
    • 9th Oct 16, 11:14 AM
    • #4
    • 9th Oct 16, 11:14 AM
    One minor point is that once the money is in the pension, although you've banked the tax relief you're vulnerable to changes in the law about getting it back out again. OK you don't have long so you might consider it low risk, but they changed the minimum private pension access age from 50 to 55 without very much notice so you can't say that they'd never do a thing like that.
    • dunstonh
    • By dunstonh 9th Oct 16, 12:26 PM
    • 85,148 Posts
    • 50,161 Thanks
    dunstonh
    • #5
    • 9th Oct 16, 12:26 PM
    • #5
    • 9th Oct 16, 12:26 PM
    I'm considering replacing my capitol repayment mortgage with an interest only mortgage and then putting the difference in payments into my pension scheme.
    That would be considered a new interest only mortgage and most lenders have pulled out for new interest only mortgages.

    Plus, its a very risky option that is unlikely to pass most lenders criteria.

    My logic is the difference between the low mortgage interest rate and the tax saving on my pension contribution should save me a considerable amount of money.
    And that is what most people that did pension mortgages back in the late 80s/early 90s thought before seeing it go wrong. Plus, they got higher tax relief and some MIRAS back then.
    Last edited by dunstonh; 11-10-2016 at 9:26 PM.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • bonjan
    • By bonjan 11th Oct 16, 8:17 PM
    • 75 Posts
    • 29 Thanks
    bonjan
    • #6
    • 11th Oct 16, 8:17 PM
    • #6
    • 11th Oct 16, 8:17 PM
    Most lenders won't accept the pension as a repayment strategy but some still do, e.g. Leeds BS do accept pension as repayment strategy.
    You'll need to check the fine print of the lending criteria of each lender to find out which ones do accept a pension, and also the strings attached (minimum pension pot size, etc).
    As already mentioned above, you'll also need to meet minimum income criteria to qualify for an interest only mortgage.
    My advice would be to check with a broker and/or do your own research.
    • jaybeetoo
    • By jaybeetoo 11th Oct 16, 10:58 PM
    • 554 Posts
    • 261 Thanks
    jaybeetoo
    • #7
    • 11th Oct 16, 10:58 PM
    • #7
    • 11th Oct 16, 10:58 PM
    It's a risk - you have no idea what governments might do to pensions in the future. History shows they can't resist meddling. There may not be the option to take 25% cash tax free when you retire. How lucky do you feel?
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