Pension Mortgage

• A Pension mortgage is an interest-only mortgage combined with a personal or stakeholder pension
• This style of mortgage is simple; an interest-only loan is taken out combined with regular payments into a personal or stakeholder pension
• When the pension matures you use a tax-free cash lump sum to repay the principal on the loan

In a similar vein to ISA mortgages you'll only know if a Pension Mortgage was a better choice than a more traditional style at the end of the investment period. If the stockmarket and your overall pension does well then a Pension Mortgage is likely to be superior to a standard-style mortgage and vice-versa.

Advantages of Pension Mortgage

• Tax Efficient - Tax benefits as far as paying contributions into a pension combined with a tax-free lump sum on retirement are excellent advantages to a pension mortgage. The power of (tax-free) compounding over many years will also work in one's favour.

Disadvantages of Pension Mortgages

• Retirement Age - Because you are not allowed to take your pension money before the age of 50 it is possible to be paying interest on the mortgage for a long time
• High Premiums - Depending on how large the original loan is you may need to make considerable monthly contributions to your pension. Can you afford these and after the lump-sum is paid out will there be enough of your pension left for general living?
• Inflexible - Everyone's financial status and needs are different, especially when looking over a multi-year period. Pension Mortgages can be inflexible and so this should be taken into account when looking at your personal and likely financial situation in the future

Fixed Rate Mortgage

• The rate of interest that you pay is fixed for a certain amount of time, usually 1-5 years but can be longer
• This style of mortgage is very advantageous in times of rising interest rates but the Lenders are business people, and if it looks likely that rates will rise significantly in the future it may be hard to find any provider offering Fixed Rate mortgages.

The advantage of a fixed rate mortgage when rates rise is turned into a disadvantages when they fall because the mortgage holder will not enjoy any of the benefit of reduced monthly payments. Nevertheless for people with limited budgets or those who are unable to financially handle increased monthly payments, a fixed rate mortgage is often a sound plan.

Fixed rate mortgages are also popular with people who borrow a lot of money in relation to their personal income because they can budget many years in advance without the dark cloud of possible rising rates hanging over them.