Are endowment mortgages all bad?

filigree_2

I've got an endowment policy due to mature in 2013. The sum assured is about £20K, but the prediction is that it will only pay out £15K or more if I'm lucky.

After the divorce I'll be seeking a new mortgage on a new property, effectively as a first time buyer not a remortgage. I'll need to borrow about £45K. It will be a low LTV because of a hefty deposit.

I've heard horror stories about endowments but seeing as I'm stuck with the policy I thought I might as well use the thing? At least it means some of my mortgage will be interest only.

Question is, should I consider getting a mortgage that is part endowment, part some other product, or should I treat the policy as stand alone life assurance and get a mortgage based on repayment only?

Do lenders even let you have a mortgage that is split between two different products?

I'm not househunting right this moment but I'd like some ideas on what sort of deals to look for, then I can set about finding the best rates.

dunstonh

No, not all endowments are bad. Many are still paying out surpluses and many people are surrendering perfectly good endowments because they think they are bad. Equally, there are some awful endowments which should never have seen the light of day. That applies to most financial services products though. Some good, some bad.

You can split between interest only and capital & repayment. However, you should verify the state of your endowment before you make your choice as it could cost you more in the long term if you make the wrong choice now.

Justin_Credit

My mortgage is part interest only and part repayment. It was originally all interest only but I had part of it converted to repayment 5 years ago after I found that the endowment would probably not perform as it was supposed to.

I used the guaranteed figure at maturity from my most recent statement when I set it up, and left that amount on interest only. The remainder was converted to repayment. I know now that the mortgage will be repaid at maturity which gives me peace of mind.

You would have to enquire with lenders to see if you could do something similar to make use of your endowment. One potential problem is the fact that the endowment in your case would mature part way through the term of the mortgage but maybe that can be sorted somehow.

I hope this is of some help.

JC

brannyrhino_2

Everyone with an endowment(Interest only mortgage) should by now have split repayment types as they should if they have any sense have converted the shortfall+ to Capital and Interest.

All lenders will let you convert part of your mortgage to a split repayment for a fee of about £50 to £100.

filigree_2

brannyrhino wrote:

Everyone with an endowment(Interest only mortgage) should by now have split repayment types as they should if they have any sense have converted the shortfall+ to Capital and Interest.

All lenders will let you convert part of your mortgage to a split repayment for a fee of about £50 to £100.

Right now there is no shortfall, I'm still with the almost ex husband and our combined life policies even by the worst prediction will pay off the mortgage. Compared to some others, we got off lightly in the whole endowment mortgage drama.

Justin_Credit wrote:

I used the guaranteed figure at maturity from my most recent statement when I set it up, and left that amount on interest only. The remainder was converted to repayment.

One potential problem is the fact that the endowment in your case would mature part way through the term of the mortgage but maybe that can be sorted somehow.

Yep, if I used the endowment I would only borrow £15K against it and not depend on it paying out in full. I suppose when the endowment matures it would pay off a certain amount and I could just carry on with the repayment mortgage, I'd have to check the mortgage terms didn't penalise me for an early partial redemption. At that stage I'll have no dependent child and I would probably consider a re-mortgage - keep up the same monthly payments and reduce the term.

lisyloo

"Yep, if I used the endowment I would only borrow £15K against it and not depend on it paying out in full."

This sounds dodgy because you said earlier it this was a prediction and it would on pay out £15K if you're lucky.
I'm not sure of your exact figures but you should bear in mind that predictions are just that.
If you get a range of figures (usually 3 at 4%, 6% and 8%) then it would be sensible to use the bottom one if you can.

Justin was talking about a "guaranteed" figure. I'm not sure what he means (posible the current value) but be careful which figures you are using.

Make sure you understand whether they are a guaranteed minimum or a prediction.
Predictions are usually given in the range 4%, 6% and 8%.
6% is reasonable but if you want to play it safe you should use the 4% figure.
Even that isn't guaranteed.
You also have to consider what you can afford of course.
No point starving yourself for remote possibilities.

Justin_Credit

Just to clear up any confusion with my last post, the figures I used from my statement were

1 Amount of Benefit-This amount is guaranteed to be paid at the date of maturity.

2 Existing Declared Bonus-This sum is also guaranteed to be paid at the date of maturity.

3 New Declared Bonus-This is the bonus earned in the year since the last statement and again is guaranteed to be paid at maturity.

In my case all these added up to £16,000 at the time so I left that amount as interest only on my mortgage and converted the rest to repayment.

JC