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Pension mortgage. The self-employed or those with a personal pension can link their mortgage loan to a pension plan. At the end of the mortgage term, part of the tax-free proceeds (the tax free lump sum) of the pension fund is used to repay the capital outstanding.
The main drawback of a pension mortgage is that it will reduce the amount available to provide a pension in retirement. On the plus side, tax relief is available on your pension plan contributions.
Having paid off your mortgage with your pension fund, the remainder of your pot of money has to be used to provide you with an income in retirement - in other words you'll buy an annuity.
Last Updated: February 2008 © Moneyextra.com
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