Endowment mortgage

[LovelyBath77]

DH got one of these in the 1990s and it will be finished in around 6 years. I was worried about it but he says it is OK, as whenever he gets a 'red letter' saying it is not on schedule, he has paid it upwards to the level where it will be right / on track.

I have been reading about these mortgages and still not convinced. Does that sound correct? Thanks

The 'red letter' usually refers to the repayment vehicle - eg an insurance policy. So it could be that he is 'topping up' the policy with money so that it is equivalent to the balance owing on the mortgage.

Yes, that sounds correct. I know it was with the Northern Rock, who have now been taken over by someone else.

So this means it will be on track? He has since got red letters but when you look in details it says it is on track!

Do you know the amount o/s on the mortgage?
Do you know how it is expected to be paid off?
What is the current value of the associated insurance policy (if that's what it is)?

They can be bad, they can be ok. The value of the mortgage may be fairly low anyway if it was in the 90s so any surplus could possibly be converted to a loan or a repayment mortgage.

I'm not sure, he got a but grumpy when I mentioned it (probably due to the increased payments) so I haven't pried further. It was from before he met me.

The property was bought for 75K late 1990s, now valued around 300K. So what I'm thinking is the outstanding value may not be too high anyway. It is in total around £450 a month. at present.

We had an endowment mortgage which has just matured which was from the 1990s and we kept getting red letters about it and it looked like it would underpay by about £10k We didn't do anything about it as we had separate savings which would cover the shortfall.

In the end it all come out alright by the time the terminal bonuses were added, it ended up giving us an extra £8k over instead of a shortfall so you never know until it finishes. I think you just have to be prepared for shortfall in case.

Yes, it's a bit stressful isn't it. He will be 55 at the end of it so hoping it doesn;t end up with any pension being cashed in to pay any extra. Glad to hear yours was Ok light.

We have one with a few more years on it. Many red letters, but dh keeps on paying it and is convinced it'll all come out okay. Just hope he's right!

Fingers crossed! Yes check as sometimes although they are red, it says on track! It can be really confusing and stressful.

I have one due to mature this Friday, the estimated payout looks like it will be the full value give or take a few £100. I don't need it to clear a mortgage so it doesn't really matter but you need to look at mortgage value compared to estimated payout.

Is your DH overpaying the mortgage? Is it a mortgage on your joint home or on another one, either way, you should know how you stand as a couple, even if your DH took the mortgage out alone originally.

He's following the advice on the letters with regard to increasing payments to make sure it's on track, yes.

We had one from early 90s. It wasn't for a huge amount (38K) and as we had been paying in to it for a number of years we were advised to carry on paying as it was worth more to us that way rather than cashing it in early. We kept getting "red letters" but as we could afford it we paid off part of our mortgage, changed a lot of it to capital & interest rather than interest only. It matured a couple of weeks ago and we got about £34K which isn't bad as the red letters were quoting between £22K and £26K.

Each lender is different but as long as you take appropriate action you should be ok. We are now mortgage free!

Good news starving!

LovelyBath77

While DH sounds as if he is ‘doing the right thing’ in paying up into the Endowment plan to clear the mortgage, the potential problem with any Endowment Mortgage, is that you are relying on the company’s investment performance and their investment projections over those remaining years – which in turn will affect future payment demands until the maturity date of the policy.

And the closer the policy gets to maturity the less risk averse the Endowment manager will become in the policies investment mix e.g. more bonds than stocks, but looking at the CURRENT investment return on top quality bonds, say a UK Government 5-year bond yield (under 1%) at 0.56%, and even a 10-year more riskier bond only yields 1.21% - in an environment where interest rates are so low they can only go up from here (and so the prices of bonds come down) – it is within that uncertain investment outlook over the next several years, your policy will be subject to.

Global stocks have done well over the last few years and gave my pension plan a good boost, but as I alluded to earlier, must of the ‘return’ depends on the investment ability of your Endowment provider.

The ‘Terminal Bonus’ previously mentioned can make a difference, but if memory serves what you get at maturity is somewhat discretionary, as it depends on how the manager has been performing over the previous several years.

While I would not worry at all as DH is stepping up to any shortfall, what I WOULD suggest is that he requested external professional advice looking at the plan’s value and the past performance of the Endowment manger, as there may be an ‘alternative’ to keep increasing payments, like cash-in the plan, and finish the mortgage with a relatively cheap and short Repayment Mortgage – which could be adjusted to current needs, or finances.

Just a thought, as if the manager is an investment lemon it could be like ‘throwing good money after bad’, but clearly good professional advice is required, not what ‘a man said down the pub’ – or indeed this idjut on a board.