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> Mortgages
> Pension Mortgages - UK Guide
 In a nutshell
A mortgage where you only make regular payments on interest with the capital being repaid by part of your pension fund at the end of its term.
Best Mortgage For
Cash rich individuals, people with potentially large pension funds, the self-employed and people that want an interest-only product. Any consumer can take out a pension mortgage but there is always the risk that your fund won't be big enough to pay off your mortgage and meet your pension needs.
Mortgage Type
Pension mortgages are interest only products. Here your regular payments to your lender only go towards paying back the interest you owe. The capital sum remaining will be paid off at the end of your mortgage by part of your pension fund. You can negotiate all types of deals for the interest only element of your mortgage including fixed and variable rates, capped and discounted rates and tracker products. The chances are that any deal you arrange for this element will last for between 1-5 years and then you will default back to a variable rate or a tracker product. It is your responsibility to build a pension fund to make the capital repayment - this does not have to organised through your lender.
Typical Amount to borrow
Standard terms generally offer between 3-4 times a single income or 2.5-3 times joint income. However, it is possible to find lenders that will increase these limits. It is also possible to take up 100+% mortgages for a pension mortgage.
Deposit
No deposit is necessary for a 100% mortgage. Most lenders will expect a deposit of at least 5% in all other cases.
Advantages
The first advantage you'll see here is in costs. The payments you make to your lender every month will only be based on the interest for your mortgage so they'll be much lower than those necessary for standard repayment products. If all goes well, your pension fund will grow sufficiently to give you a lump sum sufficient to meet your capital repayment needs and then a decent pension income on top of that. You'll also see some tax advantages here as pension payments are given tax relief - especially useful if you're a higher rate tax payer. And, the lump sum you use from your pension fund at the end of your mortgage term will be given tax free.
What to look out for
You don't always have that much flexibility with pension mortgages - for example, you'll have to be over 50 to access your pension in most cases and some pension providers limit the amount of your pension 'pot' that you can use for this purpose. The fact that you have to reach an official retirement age before you can access your pension fund has meant that many people end up making interest repayments for more than the standard 25 years. There is, as with any investment, also the risk that your pension fund will not grow enough to pay off your mortgage borrowings and to give you an adequate pension on top of that. It's therefore vital to take qualified advice before buying a pension mortgage and then to track your pension fund performance on a regular basis. If it doesn't do too well you may have to make extra payments into the fund or look to build up lump sum cash elsewhere. Some people have even been forced to sell their homes to find the money. You also need to consider the fact that the rates you get for an interest only mortgage may not be as favourable as those on offer for repayment mortgages. So, if rates rise you may find yourself paying a lot more than you originally budgeted for.
Alternatives
There are no precise alternatives but you could look at flexible mortgages or a combined repayment/interest loan as a different option.
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