Endowment Mortgage Advice Please (Should My Mum Sell-Up?)

ethans_dad

Hello,

I was wondering whether the vast knowledge of you Moneysavingexperts out there might be able to help me out.

My recently retired mother has an outstanding endowment mortgage with the Halifax who previously told her that she wasn't eligible for any mis-selling compensation. They recently wrote to her to say they were taking a second look at her case, and she awaits the outcome (expected in 12 weeks). A separate company has offered her £30,000 for her policy, and the Halifax £27,000 (on a policy that was expected to pay out £70,000 in 2013).

On retirement she down-sized her property, and she can no longer afford the £100 a month for the policy. The various offers made to her made me think how much it would pay out in 2013 if the payments were kept up - should I give her the money for payments for the next 7 years? That is, is it worth paying about £8,500 to see what the overall total will be in 2013?

I suppose the real question is, what will the shortfall be on the projected £70,000 payout, and is it worth paying another £8,500 for? (The offer from the independent company of £30,000 for the policy makes me think it is, but I could be wrong).

Any thoughts greatly appreciated.

EdInvestor

Post some details about the policy.

Company it's with
Guaranteed sum assured
Declared bonuses
Surrender value (Call up and ask)
Monthly premium
Maturity date

Any projections of maturity value

vinno65

Hi Ethan,
an endowment mortgage into retirement isn't the best advice is it? Did the Halifax ensure at the point of sale that your mother would be able to afford an endowment into retirement or did they tell like so many others that she could surrender early on her retirement date and still pay off the mortgage?.
It's interesting that they are looking at her case again!

regards Vinno

ethans_dad

Here's the information on my mum's policy:

Company - Scottish Widows
Guaranteed sum - £24,079
Bonuses - £12,688 (giving a total benefit of £36,767)
Surrender value - £26,800 (offered slightly more by independent company)
Monthly premium - £105.75
Maturity date - 20/7/2013

She hasn't any projections of the maturity value, which is why she and I are unsure what to do. Any help gratefully received.

missile

I would ask when did she take it out? Have you enquired if it can be converted to a paid up policy?

I believe Scottish Widdows will provide a projection of the maturity value, but it will be based on the declared % values as regulated by FSA and may or may not reflect the final value. i.e. not really a lot of use to you.

If you can afford the premiums then regard it as an investment. Would you invest in such an endowment? Obviously the people who are offering to buy it, feel they can sell it on (for a profit) as a TEP. There is no way of predicting the future, but a look at how the "investment" has performed may help you decide.

An IFA may give you expert advice and I do not profess to have any particular knowledge but if it were mine I would not cash it in, particularly if it has been running for many years?

EdInvestor

ethans_dad wrote:

Bonuses - £12,688 (giving a total benefit of £36,767)

If you cashed it in/sold it and put it on deposit @4% also paying in the premiums, she would be likely to get 45,530 on maturity, quite a lot higher than the guaranteed value.

You need to compare this figure with the maturity projections to get a feel for the likely payout.

I wouldn't have high expectations about Widows - it is not that their WP fund is weak ( on the contrary), the problem is they have to fork out for a lot of expensive guaranteed pension annuities.

As a result they tend to rather mean-minded with their terminal bonuses for other customers like your Mum.

I guess she got a nice big demutualisation bonus a few years ago though, which will have helped.

dunstonh

Scot wid were doing GARs until 1995. Much later than everyone else. Its really going to hit future returns. Also, they are owned by a bank and good returns rarely come from LTSB products.

ethans_dad

So Scottish Widows finally sent my mum the information she requested, and it was very illuminating. Thanks for everyone's posts so far, they've been very helpful.

If she stops paying in premiums now, the illustrated maturity value at 20/7/2013 is £40,100 with 4% growth, and £45,800 with 6%.

If she continues paying in £105.75 for the next seven years, the value at 20/7/2013 is £48,900 at 4% and £55,800 at 6%.

So for paying in an extra £8,883 she gets an extra £10,000 if there's a 6% increase, but if the gain is just 4%, she somehow manages to lose £83!

Anyone any idea how this works? (I realise that the major gains on a policy like this are made on the monies paid in through the early years, and maybe annual charges take up some, but to lose money seems a little extreme!)