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Save 40% On Mortgage Payments

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Thought occurs to me.....

With the introduction of 'A day' or whatever it was called, I understand I can now put any % of my salary I choose in to my pension. As a 40% tax payer, I ineffect get a £1 for every 60p I contribute. I current put in 17%. Sooooooo, if I took out a I/O mortgage, and payed extra money in to my pension rather than a 'normal' endowment, that would give me £1 for every 60p I contribute. I then pay off the I/O mortgage with a lumpsum from my pension when I retire (I am 32 so there may be a 'gap' of 7 years I would need to cover)

Would this work?

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Good idea.

I had a so-called "Pension Plan" I/O mortgage from the A+L once on this basis (1980's). There were few lenders at the time that would entertain the notion - it seemed to be frowned upon. Nowadays will self-cert and looser controls it should be straightforward.

If you put the money in an e-sipp you can retain total control.

Edited by BuyInTheDip

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Thought occurs to me.....

With the introduction of 'A day' or whatever it was called, I understand I can now put any % of my salary I choose in to my pension. As a 40% tax payer, I ineffect get a £1 for every 60p I contribute. I current put in 17%. Sooooooo, if I took out a I/O mortgage, and payed extra money in to my pension rather than a 'normal' endowment, that would give me £1 for every 60p I contribute. I then pay off the I/O mortgage with a lumpsum from my pension when I retire (I am 32 so there may be a 'gap' of 7 years I would need to cover)

Would this work?

It's an interesting plan. I was musing on those lines myself.

I believe the size of the mortgage would have to be no more than 25% of your final pension pot size, because you can only take out 25% as a lump sum -- correct me if I'm wrong anyone. Maybe this is not a problem, if you invest the pension pot wisely it might well grow to 4 x the size of the mortgage.

What if the government reduces the 25% rule, to say 15%? EEK!

The other issue is cash flow. If you had to sell in the next few years, there is a good chance you would not have any equity (in fact you might have negative equity if HPC is to be believed) and you would not be able to tap your pension savings to make up the shortfall.

I think a more moderate version might be better, you have a repayment mortgage for a few years until the amount outstanding is say £50k. Then you switch to a 10-year fix, interest only, and redirect the savings into your pension pot. Then, when you retire, use the lump sum to pay off the 50k. This mitigates both risks that I mentioned, although the payoff is not quite as good.

frugalista

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I then pay off the I/O mortgage with a lumpsum from my pension when I retire

You are restricted in what you can do with the pension pot when you retire. Under current rules, you can take some as a lump sum, and who knows what the rules are going to be when you retire. Also I belive tax relief is limited to amn amount equal to 100% of your gross salary. The other thing to bear in mind is that the currnet govt are passing retrospective anti avoidance legislation. That means that if there's a loophole, they can close it, as though it never existed.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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