Endowments - are they that bad?

qualityp

Thanks for all your replys guys, in answer to Eds question

Im currently paying 4.44% fixed until 31/8/07 with Aliance Leicester, after that it goes up to their standart rate of 7.09% but I was planning on changing to another discount offer before it ends.

So the million dollar (or even £85k) question is what do you think I should do?

Cheers

QP

Edit : I should add that my monthly payments to alliance&leicester are £314.61

dunstonh

NU have better funds available than the balanced managed. I would utilise some of the alternatives to build a better spread. Switching is free of charge. This of course assumes that you still have the risk profile to keep an investment linked mortgage.

qualityp

dunstonh wrote:

I would utilise some of the alternatives to build a better spread. Switching is free of charge. This of course assumes that you still have the risk profile to keep an investment linked mortgage.

Thanks Dunstonh, could you explain "better spread" - I assume you mean more units?

Also what do you mean by "Risk profile to keep an investment linked mortgage"?

Why do they make these things so damn complicated??

Cheers

QP

dunstonh

Thanks Dunstonh, could you explain "better spread" - I assume you mean more units?

You have all your money in one fund that is a jack of all trades fund. It has a bit of this and a bit of that. You can invest the money into any of the other funds NU have available and having your own spread across those funds usually ends up with better results. i.e. 15% in UK equity, 10% in European Equity, 15% in property etc etc.

Also what do you mean by "Risk profile to keep an investment linked mortgage"?

It isnt a risk free option. Investing means you are trying to earn more on the endowment than repaying the interest. If successful, you end up in surplus. If not you end up in shortfall. If you still accept that risk, thats fine. If you dont want that risk, you need to be reconsidering the endowment.

Why do they make these things so damn complicated??

Its not. However, its my profession. I dont know about car engines, I cant decorate, I cant build anything.... I get someone to do all the things i dont know or cant do. Financial services is much the same.

EdInvestor

qualityp wrote:

Thanks for all your replys guys, in answer to Eds question

Im currently paying 4.44% fixed until 31/8/07 with Aliance Leicester, after that it goes up to their standart rate of 7.09% but I was planning on changing to another discount offer before it ends.

So the million dollar (or even £85k) question is what do you think I should do?

Nothing need be done at present.I would review the situation next August when you plan to remortgage anyway.

It really boils down to a decision on risk vs certainty: do you want to take a punt that you might get another 20k on top when your mortgage matures, with the risk that you might get 20k less? If so stay with the endowment.

Or would you prefer to be sure that your mortgage will be paid off at the end? If so go for repayment.

These days there are a couple of other routes:

1.Overpaying an interest only mortgage.This gives you flexibility in case of unexpected problems ( loss of job, divorce etc) - you can just stop paying the extra for a while until things improve, instead of renegotiating the whole mortgage at some expense. If you have the discipline to keep up the overpayments, this has a lot to recommend it in these uncertain times.

2.Offset mortgages. These are useful if you have a chunk of cash ( such as an endowment S/V and or other cash ) to offset against the mortgage.It reduces the amount you pay in interest and can be quite a cheap option in the right circs.It's also very flexible but again requires a certain amount of self discipline..

I suggest you use the next year to do some more reading about the various options so you are well placed to take advanatge of the best deal.

qualityp

Thanks for all your advice guys, I have made an appointment to see an independant financial advisor to discuss all of this.

Cheers

QP