The return of Interest Only Mortgages?

Thrugelmir

CLAPTON wrote: »

what limit of three withdrawals?

Three bites of the cherry so to speak. Many people in the private sector will have more than one pension plan. I understand that to be the rule that's being suggested. At the moment still open to debate and discussion.

wotsthat

Thrugelmir wrote: »

I was answering the question in the context of using a pension to pay off a mortgage. Given the size of mortgages these days and the limit of 3 withdrawls the tax liability will be significant. As I took no account of other sources of income, these I assumed would utilise the tax free personal allowance.

I'd rather pay £x into a pension, get 40% tax relief and then receive a quarter back tax free and pay 20% tax on the rest than the alternative which is to pay £x off the mortgage which has already been taxed at 40%. The size of the mortgage is irrelevant - paying mortgages out of earned income is less tax efficient than using a pension.

This was already possible but yesterday the process got a whole lot easier to manage. Tax planning for retirement is more important than ever - those behind the curve will pay much more tax than they need to.

Not sure what the relevance of withdrawals is?

wotsthat

MFW_ASAP wrote: »

Flaws?

There's always potential for less advantageous tax rules to be implemented but unlikely to be a worry for anyone within 10 years or so of getting their hands on the tax free lump sum.

The main risk is losing income and finding the mortgage is a bigger burden than it would have been if capital had been paid off. Again this can be managed to a degree.

On the whole I see many more advantages than disadvantages. Can't see me going IO though - when I've re-mortgaged I've extended the term to state retirement age to reduce the capital being repaid but I do like to see my debt reducing over time.

grizzly1911

Question is do you want to load all eggs in one basket?

Pensions are notorious for being frigged around with. Who knows what the position will be in 10 years time let alone 20/30. Who knows what the tax position will be on inflows or outflows?

Not being able to get to your cash until 57 or whatever point it get s raised to means paying interest on full balances.


Simply paying off a mortgage, with interest on a reducing balance still has its attractions. Mortgage free sub 50/55 still has many plus points in the world we live in these days.

Lots of things happen in life - it doesn't always run to plan.

PaulF81

you can pretty much do this by getting a tracker with a 35 year term. Pay minimum repayments but save the cash. OK, you will be making caital repayments, but they are always only a small percentage for the first few years.

CLAPTON

grizzly1911 wrote: »

Question is do you want to load all eggs in one basket?

Pensions are notorious for being frigged around with. Who knows what the position will be in 10 years time let alone 20/30. Who knows what the tax position will be on inflows or outflows?

Not being able to get to your cash until 57 or whatever point it get s raised to means paying interest on full balances.


Simply paying off a mortgage, with interest on a reducing balance still has its attractions. Mortgage free sub 50/55 still has many plus points in the world we live in these days.

Lots of things happen in life - it doesn't always run to plan.

rather agree with this

several different baskets for things this important

wotsthat

grizzly1911 wrote: »

Question is do you want to load all eggs in one basket?

Risks have to be assessed alongside the rewards. Repaying £100 debt for a 40% taxpayer requires earnings of £167 vs £125 for a basic rate taxpayer.

These aren't inconsequential sums of money so it's worth careful consideration. Personally I'm not willing to put all my eggs in one basket as I've indicated but the 'pension basket' is currently more of a priority than the 'repaying debt' basket.

MFW_ASAP

Thrugelmir wrote: »

Three bites of the cherry so to speak. Many people in the private sector will have more than one pension plan. I understand that to be the rule that's being suggested. At the moment still open to debate and discussion.

Thrug, do you have a link to the rules that cover the withdrawal of pension monies? I've not heard anything along these lines in any of the news reports post budget?

My approach would to be to remove the full 25% tax free and pay this onto the mortgage immediately. The rest would be withdrawn in parcels of money just under the higher rate tax threshold, meaning that it is taxed at 20%.

I think some people have missed the point. It's not to use retirement savings to pay off a pension, it's to put away mortgage repayment money into a pension wrapper and gain 40% tax rebate.

Essentially I'd have 2 pensions, one for retirement, built up from regular monthly payments that I already pay into a pension and have done for years. The second pension will hold the repayment portion of my (now) IO mortgage. Plus a 40% uplift from tax.

shortchanged_2

MrRee wrote: »

First Direct are still doing IO Mortgages .... I'm considering one at the moment.

And, you must factor in management charges on the Pension.

I thought you were mortgage free.....Ree.

chewmylegoff

shortchanged wrote: »

I thought you were mortgage free.....Ree.

Despite MrRee's laborious pretending, first direct are still doing interest only mortgages. They don't do BTL lending as far as I understand and they don't lend to 85 year old rocket scientists or whatever persona he has invented this week. But they are in the process, it seems, of giving me an interest only mortgage at the moment.