Frequently Asked Questions About Pension Mortgages

Here I will discuss the most frequently asked question about pension mortgages and how to avail of one successfully.

Frequently Asked Questions About Pension Mortgages

Pension Mortgages allow you to purchase a property through your pension fund. Within a pension scheme, all income and gains are exempt from income tax and capital gains tax, so both sale of the property and rental income are not subject to income tax. There are many advantages to taking out a pension mortgage through your pension fund these include: 

1. You can choose the property yourself  
2. Both commercial and residential property can be acquired  
3. You will pay no income tax  
4. You can access unique investment opportunities with your own contacts and knowledge  
5. Income tax relief on employer and employee contributions remain at a higher rate of tax  
6. Control over all aspects of your pension affairs including all contribution and investment decisions  
7. If available, borrowing can be utilised to assist in funding the purchase and the property fund can even be registered for VAT if required 
8. On retirement, you can take 25% of the value of the pension fund as a lump sum, of which €200,000 is tax free  

There are many frequently asked questions in relation to pension mortgages, so we have compiled a list that may come in useful for you.  

 

1. Is it better to deal with a broker? 

You could go to a bank yourself however it may be a better option to go through everything with an insurance company or a lender directly where they will only have their products on offer.  

 

1. How much money can I borrow? 

In most new rules for lending, there is a limit on how much you can borrow, however, in some cases, it is the gross income by 3.5 times. This amount may be a cap for certain lenders so you may not always qualify. In most cases, there can be most difficulties arranging a mortgage for incomes for less than 30k for a single person and 50 k for a couple.  

 

1. How do lenders calculate how much I can borrow? 

It really depends on what you are comfortable and can afford to pay for the monthly repayments for a loan and the money that you borrowed. Your mortgage lenders will assess your overall financial situation under the following: 

1. Savings  
2. Outgoings  
3. If you have any other load payments  
4. Your income - only your guaranteed income will be taken into consideration when doing the calculations. Overtime and bonuses may not be used or taken into account 

 

1. Will all my income be taken into consideration? 

The key thing lenders take note of when assessing your mortgage application is do you have the ability and income to pay back the loan payments. They will review your income currently and make considerations as to whether your income will continue for the future reference. 

 

1. What income proof to you require? 

To get a mortgage you must be committed long term. To show a sustainable income most lenders will require 3 month’s pay slips for proof of current income and bank statements.  

 

1. What’s the difference between the APR and the interest rate? 

APR stands for “Annual Percentage Rate”. It is the total cost of your mortgage over its term, it takes in account both fees and interest rate charged, as well as whether you should be charged quartely or monthly on interest. 

The interest rate is the actual rate at which interest is charged on the amount that you borrow.  

 

1. Can I get a mortgage if I am already retired? 

Yes, you can get a mortgage if you are already retired, however, it will be a bit different to borrowing before you are retired. If your only form of income is your pension, then the lenders will establish what you can afford to borrow with the gross figure. If you are in retirement the gross income can be reduced as often the max-age limit means the max mortgage term is less than for someone in their thirties, for e.g.  

Author's Note

Always remember folks, if you are unsuccessful the first try, keep trying and trying different ways. There are many pension mortgages providers out there that will happily help you.