What is a pension backed mortgage?
The idea behind a pension backed mortgage is that your mortgage
is interest only for a long term period, e.g. 25 years. Instead of paying off capital,
the investor takes out a pension plan and makes contributions to the pension plan
that are designed to pay off the capital sum at the end of the period. This means
that instead of paying one amount to your bank each month, you pay a lower amount
to the bank (interest) and an amount to your pension provider (your pension contribution).
If all goes well, the value in the pension can be used to pay off the capital amount
to the bank, and at that stage you own the property outright.
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Who is suitable?
Generally, if you are within 30 years of retiring, have unused pension
contribution and/or are self employed or a company director, then you should consider
a pension mortgage as a means of financing an investment property.
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Why do it?
Up to a certain annual limit, pension contributions are deductible
from income tax, meaning tax savings of up to 42% and tax free growth within your
pension fund. In addition, non payment of capital under your mortgage means that
you maximise the tax deductions of interest throughout the term of your mortgage for investment.
One potential disadvantage is that the ability to repay the principal sum at maturity
will be dependent on the performance of your pension plan.
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For more information on all options available to you, contact one of our mortgage advisors today on 1890 462 462