Stuck in endowment trap - help!

EdInvestor

Could you supply these figures:

the surrender value of the endowment
the value of the outstanding mortgage (34,500?)
the interest rate on the mortgage
The approx value of the property

Do you think you might be candidates for an "equity release" lifetime mortgage later on after retirement to top up your pension/sort out the maintenance of the home?

barbara22

EdInvestor wrote:

Could you supply these figures:

the surrender value of the endowment
the value of the outstanding mortgage (34,500?)
the interest rate on the mortgage
The approx value of the property

Do you think you might be candidates for an "equity release" lifetime mortgage later on after retirement to top up your pension/sort out the maintenance of the home?

Will get these figures for you Ed and post back.

We are looking at 'equity release' options - I have just downloaded the FSA booklet on this, but haven't had a chance to go through it yet. Initially, thought you needed to have some 'equity' in order to be able to go down this route (obviously we haven't, but this doesn't allow for current value of the property of course). Must say that the term 'equity release lifetime mortgage' worried me - without going in to detail, could you summarise what this means in a nutshell? To me, 'lifetime' means the rest of our lives, and 'mortgage' means paying - forever? As usual, I am probably misunderstanding the terminology.

Thanks for stepping in with your advice - will come back re the figures.

barbara22

AndyWallace wrote:

Yikes! No, no, no, no, no.

Keep the investment going and when it matures you can use this lump sum as originally intended, to repay (all or some of) the capital element of your mortgage. It may be that the maturity value of your endowment increases much more than anticipated in the next few years anyway - who knows? But at least you're giving it a chance to recover. And if it does do better than anticipated now, then you will get the benefit of the additional monies on its maturity.

You could remortgage your property on a part repayment / part interest only basis. You could do £20,000 on interest only and £14,500 on repayment over 8 years. If your current lender will give you their 'retention' rate of 4.98% fixed then your repayments would be in the region of £275 per month, plus the cost of your endowment policy.

As I said earlier, this is likely to be more expensive than what you are currently paying, but you may be able to afford it. I don't know what your circumstances are exactly but would say that a visit to a local adviser may prove to be beneficial.

Hope this helps.

Thank you very much Andy for clarifying this - I now see exactly what you mean! Think best thing may be to go and see mortgage provider and see what they say - we would have a strain paying more but what you say makes a lot of sense.

Incidentally, a friend of ours told us yesterday NOT to sell the endowment if at all possible - he said there are additional bonuses which come in to play in the last 5 years of the endowment term, and it's very well worth hanging in there for these. Again, don't quite know what he means and didn't have time to go into it, although if true, I wonder if the 'shortfall' statement takes these supposed bonuses in to account.

Apologies for being boring, but thank you again for your valuable advice.

EdInvestor

Barbara

To clarify

Sorry to ramble, upshot is we still owe slightly more than the original mortgage.

Initially, thought you needed to have some 'equity' in order to be able to go down this route (obviously we haven't, but this doesn't allow for current value of the property of course).

Obviously you do have equity in the property, this consists of the value of the property plus the surrender value of the endowment, minus the mortgage loan.

barbara22 wrote:

Must say that the term 'equity release lifetime mortgage' worried me - without going in to detail, could you summarise what this means in a nutshell? To me, 'lifetime' means the rest of our lives, and 'mortgage' means paying - forever?

With an equity release mortgage, you borrow a lump sum and then don;t repay any interest.The interest rolls up during your lifetime and loan is repaid when the house is sold after you die or go into a care home.There is a guarantee that you cannot go into negative equity (ie owe more than the home is worth) and a guarantee you can stay in the property for your lifetime.

So it's very useful for people who have a lot of equity in their home, but not perhaps quite enough to make it worthwhile to sell and buy a cheaper one, or if they don't want to move.

However equity release is not a good deal for young people like yourselves. I am not a mortgage expert, but I wonder if an offset interest /only mortgage might be useful for you for the time being. With an offset you put cash savings in an account together with the loan, and the interest on the savings offsets the interest payable on the loan.So you only pay interest on the remaining bit.

You could perhaps surrender the endowment, place the cash in the offset (Woolwich has quite a good offset mortgage) and you would then pay interest only on the bit of the mortgage that wasn't covered by the cash. It would reduce your monthly payments.This might cut your repayments quite a lot as you also wouldn't be paying for the endowment, which might mean you could manage the maintenance.

If you couldn;t manage to pay off the capital on the remaining loan not covered by the endowment cash, you might perhaps then be able to convert this into an equity release loan later when you are older and can get a better deal.This would mean you wouldn't make any more interest payments.

It's just a thought, but it might work for you, depends to an extent on how much the endowment is worth.

Your friend's comments on endowments are out of date, though they werre correct a few years ago.It's more likely to be in your interests to surrender the endowment than keep it, but let's look at some figures first.

barbara22

EdInvestor wrote:

Barbara

With an equity release mortgage, you borrow a lump sum and then don;t repay any interest.The interest rolls up during your lifetime and loan is repaid when the house is sold after you die or go into a care home.There is a guarantee that you cannot go into negative equity (ie owe more than the home is worth) and a guarantee you can stay in the property for your lifetime.

So it's very useful for people who have a lot of equity in their home, but not perhaps quite enough to make it worthwhile to sell and buy a cheaper one, or if they don't want to move.

However equity release is not a good deal for young people like yourselves.

Thank you Ed for referring to us as 'young people'! However, I am only 5 years from retirement (if I last that long - poor health also for both me and my partner), and although he is somewhat younger than me, he certainly could not afford to cover the costs involved in the house etc alone.

Our house is about as cheap as you can get, although it's value on average has more than doubled, so option of selling up and buying a cheaper one is not on - we might be able to get a shed in some-one's garden just about with current house prices the way they are.

Anyway, am going to read the FSA booklet on equity release tonight to see if I can get a bit of insight from that.

No doubt I'll be back soon, and with those figures you mentioned.

barbara22

EdInvestor wrote:

Could you supply these figures:

the surrender value of the endowment
£12079.83 as at end 29th Nov
the value of the outstanding mortgage (34,500?)
Can't find last statement Ed, but think it is approx £34,400
the interest rate on the mortgage
7.34% - just received the latest increase yesterday!
The approx value of the property
Don't know, but recent examples of same type properties sold in next street range from £70,000 to the most recent of £100,000. Of course though, it does depend on the condition and available facilities in the property - would think we are likely to be at the lower end. The property is in an inner city (though not run-down) area, and we are frequently asked if we want to sell the house (for comparative peanuts in terms of the recent sale figures as given). The area is subject to renewal and redevelopment grants from time to time as there is much successful lobbying by lively neighbourhood residents association.

Do you think you might be candidates for an "equity release" lifetime mortgage later on after retirement to top up your pension/sort out the maintenance of the home?

I can't see why not Ed, due to the medical conditons we have, would have thought it will be straightforward to go for this when my retirement nears. If you are able to offer any advice given these figures it will be very much appreciated.

barbara22

EdInvestor wrote:

Could you supply these figures:

the surrender value of the endowment
£12079.83 as at end 29th Nov
the value of the outstanding mortgage (34,500?)
Just cannot find last statement Ed (it isn't filed where it should be), but think it is approx £34,400
the interest rate on the mortgage
7.34% - just received the latest increase yesterday!
The approx value of the property
Don't know, but recent examples of same type properties sold in next street range from £70,000 to the most recent of £100,000. Of course though, it does depend on the condition and available facilities in the property - would think we are likely to be at the lower end. The property is in an inner city (though not run-down) area, and we are frequently asked if we want to sell the house (for comparative peanuts in terms of the recent sale figures as given). The area is subject to renewal and redevelopment grants from time to time as there is much successful lobbying by lively neighbourhood residents association and the area is designated as 'an urban renewal area'. Actually I am going to ask our local 'sheriff' to give me an update ref this anyway.

Do you think you might be candidates for an "equity release" lifetime mortgage later on after retirement to top up your pension/sort out the maintenance of the home?

Re equity release lifetime 'roll-up' mortgage - I can't see why not Ed, due to the medical conditons we have, would have thought it will be straightforward to go for this when my retirement nears. If you are able to offer any advice given these figures it will be very much appreciated.

EdInvestor

Sorry Barbara, one more bit of info, what is the monthly premium you pay on your endowment?

barbara22

EdInvestor wrote:

Sorry Barbara, one more bit of info, what is the monthly premium you pay on your endowment?

IGNORE THIS ED - see my post #22
As of yesterday Ed, when we had just received our latest increase, our monthly payment is £218.21.

Looking forward to any advice you may have, just hope it's not horrendous!

dunstonh

not the mortgage payment, the endowment.