pension options

C

CuriousLar

Guest
Hi all,

My mother who is 50 is re-mortgaging her house (why dont ask!!!) Her financial advisor has suggested two pensions options she should take in order to pay off her remaining mortgage when she is 65yrs, (she is taking out a 20yr mortgage)
Option 1:

pay 200 pm into scheme:
Result: at age 65 enough left to clear bal on mortgage

Option 2:

Pay €5k upfront now and €100 pm
Result: at age 65 clear mortgage and small lump sum or small pension

I thought option 2 would be best as she would have the €5k now and as she only works part time €200 pm might be be a stretch with her new mortgage repayments.

Any advise?

tnx
 
Hi Lar - Are these 'endowment' type investment schemes, i.e. share-based investments which are used to pay off the mortgage at the end of the term? If so, you should tread very carefully - as these have been generally discredited over recent years.
 
Her financial advisor has suggested two pensions options she should take in order to pay off her remaining mortgage when she is 65yrs

Who is this advisor? Is s/he independent or tied to a particular institition? How is s/he remunerated? What are the charges on the products offered in particular the pension(s)? How has s/he pitched the offering(s) - (a) interest only mortgage plus pension plan(s) (b) pension mortgage (c) endowment mortgage (d) something else?

I would certainly tread with caution based on what you've posted so far...
 
Post crossed with Rainyday's.
 
It is an independent advisor, recently set up on his own and is doing some kinda deal where his fees are nominal or based on the commission he earns from the instititute, not too sure. My mother is under the impression that she MUST have this pension, I am not so sure.

From what little details I have, she thinks (he said) she the lump sum at the end will cover exactly what the mortgage balance!

Sorry I dont have more accurate details, thanks for your help.

I will try to make her question it more, cheers.
 
Why is a standard repayment/annuity mortgage not an option? At least that way the borrower is incrementally buying equity in the property and not hoping that an investment or pension fund will perform sufficiently well to repay the interest only mortgage come retirement or at the end of the mortgage term? Of course the advisor is presumably operating from a more comprehensive knowledge of your mother's overall financial situation and has identified these packages as the best fit for her mortgage AND pension needs. I'm just second guessing things here based on a partial view of the facts.
 
Hi Lar
or based on the commission he earns from the instititute

You make it sound as if this is a good thing - It may not be so.

The fact that the advisors commission comes from the financial instution does not mean that mother isn't ultimately paying it out - She is. It's just that she is paying the institution, and they are paying the commission (possibly all of the first years premiums) to the advisor. This may well have the result that he isn't advising your mother as to what is best for her - he is advising her as to what is best for him.

At a minimum, the documentation she gets from the advisor should declare this commission so you have visibility to it.
 
From what my mother has informed me it is a std repayment mortgage, but the financial advisor is pushing her to have the pension as he work pension is nominal and when she reaches 65 she may not have an income sufficient to meet mthly repayment until she is 70.

The pension is being sold to her as a back up in case she is incapable of working beyond 65 and has no other income!

does this make sense?
 
pension

Thanks O and Rainday,

I will get my mam to be more assertive with her questions and find out more,

Thanks again
 
OK - I get you now. Given the partial information posted so far it's difficult to say whether or not this is good advice. As with any advisor, you/your mother would really want to make sure to give the advisor a good grilling on the whys and wherefores of his advice before executing any business.

Could your mother afford the repayments on a shorter term annuity mortgage (e.g. 15 years, 10 years) that would obviate the need for a pension "safety net" linked to the mortgage (whatever about putting pension plans in place for he retirement apart from that)? I know that you said not to ask but I will - why is your mother remortgaging in the first place? Is this avoidable at all?
 
..

Hi O,

I have tried to get her to reduce the terms but she says she cant afford it. (she doesnt want to reduce loan)

She is remortgaging for:
a) pay off current mortgage (shared ownership with council
b) pay off credit union debts
c) do some house improvements
d) I think she is planning to give some as a gift to my siblings.

I have tried to get her to reduce the amt she wants, the house does not need improvements and my sister doesnt really need the cash. She is very much influenced by the current advertising of releasing equity on your home!!! The value of the property is €350k and she is mortgaging 100k so she thinks she in on to a winner!
 
Re: ..

Maybe you should tell her to read AAM? :|

Mortgage consolidation in this form generally should be considered a once off emergency measure usually for people who need an escape hatch from oppressive debt. This certainly doesn't sound like your mother's situation. Consolidating otherwise short term loans (e.g. personal loans, CU loans etc.) onto a mortgage and spreading them over the term of the loan could result in higher interest costs that sticking with the original loans or pursuing a different strategy for reducing the short term loan costs (some lenders will allow split terms so that the considated short term debts can be paid off sooner than the property loan proper). Deciding whether or not mortgage loan consolidation is a "good idea" requires a bit of number crunching to weigh up the costs/benefits and pros/cons.

I personally think it's a bad idea in this case to be honest...
 
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