How does an endowment mortgage work ?

steady__eddie

A colleague of mine has one of these which is due to expire from natural causes very shortly. Upon checking his most recent Bilding Society mortgage account statement dated 31/03/06, his gaze was directed to the following statement, "The term remaining on your mortgage is 07 months". This would presumably mean mortgage free status sometime in October 2006 ?
Upon checking his last mortgage endowment policy update, he notices that against the Maturity Date is 01 January 2007. Could someone please explain the practical implications of this please ?
I would presume that he will have to keep paying the Bldg. Soc interest until the enowment policy has matured and they get their capital repaid ? Will they take a dim view of this and slap on an exorbitant admin fee to cover "the additional work required" ?
What normally happens at the end of a mortgage ? Endowment people write to borrower saying "we're sending a cheque to Bldg. Soc. on xx/xx/xx for £x, pay the shortfall and they will give you your deeds", or what ?
The mortgage itself is for the princely sum of £7k, can anyone tell me if it is possible (not adviseable) to pay the Bldg. Soc. their pound of flesh at the end of the term and not cash in the endowment in the expectation that rates will rise and the return, when subsequently realised will show a smaller loss than it does currently ?

dunstonh

It is normal for there to be upto 12 months difference in the mortgage redemption and the endowment maturity. He just needs to make the lender aware of this and they will extend the mortgage term to match.

vinno65

dunstonh wrote:

It is normal for there to be upto 12 months difference in the mortgage redemption and the endowment maturity. He just needs to make the lender aware of this and they will extend the mortgage term to match.

Hi Dunston, can you explain why they may be up to 12 months difference?. In my case that would have meant £3000 in extra interest payments, not a small sum i'm sure you'll agree.

regards Vinno

dunstonh

If you took out a mortgage in January 1985 but moved house in October 1994 the mortgage would be reset to October. If you moved again in February 2000, the mortgage would reset to February. If you remortgaged in 2004 during December, it would reset to December.

If you had gone endowment each time, the maturity dates would be in January, February and October. With the remortgage you could now be looking at December. Whilst the ideal scenario would normally have the mortgage redemption set after the date of the final endowment maturity, it is not uncommon for people to look only at the year of maturity and not the month and find themselves with the endowments maturing after.