Endowments cause concern: PEPS can be a more flexible option

PENSIONS and personal equity plans are alternatives to an endowment policy for people who like the idea of repaying their loan with an investment plan.

With a pension mortgage the lump sum built up has to repay the mortgage at the end of the term and also provide a pension.

The advantage is that the borrower receives tax relief on the premiums. There is no tax relief on payments into a PEP but there is no tax on profits or income in the plan.

If borrowers are worried purely about monthly outgoings they may find it worthwhile to consider the PEP option. Halifax Building Society quotes a monthly figure of just over pounds 411 for a 29-year-old non-smoking woman to repay a 25-year pounds 60,000 loan with a Standard Life PEP. This is nearly pounds 13 less than the endowment payment.

The PEP is a more flexible form of investment than the endowment, but borrowers will still not be paying off any capital and rely on the performance of the investments to produce enough to repay the loan.

Halifax quotes a monthly repayment of pounds 436.96 on a pounds 60,000 pension mortgage for the same 29-year-old, pounds 13 more than an equivalent endowment loan.