Endowment Blues!

PJBrowgate

Hi Everyone. I have an £87K interest only mortgage and three separate Endowment Policies for £36K, £20K, and £31K respectively. Each obtained as I have moved houses in 1988, 1992, and lastly in 1996. They were for 25, 20, and 15 year terms. I didn't complain about miss-selling as I was genuinley aware endowments could go down as well as up, and felt it cheeky, although of course I didn't expect the huge shortfalls now predicted, and wish I had. I am overpaying the interest only part to the building society to help reduce the debt, but my real question is this. Should I now cancel the policies and use the money to further reduce the balance then convert to a repayment mortgage, or continue overpaying to reduce the debt down to the estimated end of term figures. I am still paying £220 per month for the endowments and wonder if I am throwing good money after bad, or should I keep these policies for life cover and final bonuses etc. Anyone I have spoken to just seems to want to sell me something new and I am very nervous about making the sitiuation worse. I really am confused.com!

EdInvestor

Post some info about the policies

provider
Guaranteeed sum assured
Declared bonuses
Surrender value
Maturity dtae
Maturity forecasts
Monthly premium
Interest rate payable on mortgage

remortgage_girl

What are the new things that people want to sell you?

PJBrowgate

Hi EdInvester,

I have tried to get the most up to date info as follows:-
Policy 1- Legal & General for £36,100 25/11/88 25yrs to 2013
Guaranteed Sum assured = £11,047
Declared Bonus = £7,243
Surrender Value = £18,047
Forecast at 4% = £27,100 Shortfall = £9,000
Premium = £52

Policy 2 - Abbey National (Phoenix) for £20,000 28/11/91 20yrs to 2011
Guaranteed Sum assured = £20,000
Declared Bonus = £None
Surrender Value = £8,269
Forecast at 4% = £13,500 Shortfall = £6,500
Premium = £46

Policy 3 - Abbey Life (Phoenix) for 31,000 17/12/96 15yrs to 2011
Guaranteed Sum assured = £31,218
Declared Bonus = £None
Surrender Value = £15,356
Forecast at 4% = £20,700 - Shortfall = 10,300
Premium = £116

Interest Rate on £87,000 with Abbey at SVR = 4.89%
Total Forecast = £61,300 Shortfall £25,700

The real worry is that these forecasts will not be accurate and the shortfall could be much worse. Advice appreciated.

dunstonh

The real worry is that these forecasts will not be accurate and the shortfall could be much worse. Advice appreciated.

They are not forcasts. They are projections using example rates. Those rates can both understate and overstate the likely returns and actual returns. They also assume straight line growth and that isnt going to happen.

In the case of the Phoenix plans, 4% is the maximum I would want to plan on. In the case of L&G I would go higher than that to 6% but no more. However, there is no way to tell what is going to happen. They are just estimates on what you think is going to happen.

PJBrowgate

Thanks dunstonh, I understand that. So what do I do, hang on and hope and or cancel the endowments and convert remaining debt to repayment?

EdInvestor

Could you please update those forecasts?They seem to be too high - unless you are being charged a whopping surrender penalty, which is a possibility. Perhaps you could check that

PJBrowgate

I have checked the figures with the companies by phone today. I am not being charged surrender penalties. What do you think the figures should be? What should I do?

EdInvestor

edited for error, see below

PJBrowgate

I'm sorry I don't understand that. Are you saying I should or should not cancel them? Are the loss of terminal bonuses a reason for this discrepancy?

Shazwellyn

PJBrowgate wrote: »

Hi Everyone. I have an £87K interest only mortgage and three separate Endowment Policies for £36K, £20K, and £31K respectively. Each obtained as I have moved houses in 1988, 1992, and lastly in 1996. They were for 25, 20, and 15 year terms. I didn't complain about miss-selling as I was genuinley aware endowments could go down as well as up, and felt it cheeky, although of course I didn't expect the huge shortfalls now predicted, and wish I had. I am overpaying the interest only part to the building society to help reduce the debt, but my real question is this. Should I now cancel the policies and use the money to further reduce the balance then convert to a repayment mortgage, or continue overpaying to reduce the debt down to the estimated end of term figures. I am still paying £220 per month for the endowments and wonder if I am throwing good money after bad, or should I keep these policies for life cover and final bonuses etc. Anyone I have spoken to just seems to want to sell me something new and I am very nervous about making the sitiuation worse. I really am confused.com!

I think you should run with your endowments, we don't know what the economy will do in the future but as you made the decision to take these policies at the start, I think you should continue to stick to them.. they will snowball later and I think to cash in whilst the stock market is at its worse is the wrong thing to do. What I do think you should do, in the meantime, is pay off all your debts and then start reducing your interest only mortgage by repaying what you can, when you can. Remember that if you think in terms of every £1 repayed equals to £3 in the long term, it might help you psychologically. I also think you should try and claim back on the basis of mis-selling and, if successful, put that money as a lump sum to your mortgage. Check out some of the templates.... Martin, here, has some great advice!