My parents endownment mortgage

Energised

I've just been talking to my mum, the value on our house is 43500 (Or at least it was when my parents bought it 12 years ago) so the mortgage is 43500.

Now, my parents have never been the most amazing financial manager, which is probably where I picked it up from, but she told me that she pays £300 per month on the mortgage and £120 for the endownment but apparently, all that will happen at the end of the term in 13 years is that she will have paid £43500 off of the house and get nothing back.

Basically, she'll pay more than £115000 for a 43500 mortgage!!£"*()!£

That's absolutely rediculous!

My initial thought was immediately cash in the endownment and just switch to a repayment mortgage.

Does anyone have any advice?

They've claimed for the mis sold endownment a few years back and got £2500 but as with all money my parents attain, it just vanished!

Any advice anyone?

Gorgeous_George

So, they borrowed £43,500 interest only and took out a £120 endowment policy over 25 years to hopefully pay the mortgage off.

The endowment will cost them £36,000 of which £17,280 has been paid.

There are two issues here.

Firstly, the endowment policy. You'll need to post some info for the experts to be able to say what your parents' options are. They could cash it in or keep it running. It provides insurance as wellas a savings vehicle.

Secondly, the mortgage. Are they on a competitive rate? If not, they need to consider moving the mortgage. It's possible that a repayment at a better rate could cost less than interest only at a poor rate.

There is no need to mix the two products. Switching to repayment does not mean that the endowment must be cashed in. Consider both items separately.

Suggest to them that they should try to pay thye mortgage off before they retire.

Good luck.



GG

Energised

Thanks for the advice George, I'll look into it more.

My mum is 48 and my dad 52 (or very similar ages) so I don't think there's any issue with paying it off before retirement.

My parents have got pensions/endownments/loans/god knows what left right and centre, they just chuck everything in a drawer and leave it.

I think I'm going to sit down with my mum and do a proper SOA.

I'll report back!

dunstonh

Basically, she'll pay more than £115000 for a 43500 mortgage!!£"*()!£
That's absolutely rediculous!

And what is the problem with that?

When you borrow money, you have to pay interest on what you borrow. On a 25 year mortgage, that typically is round 2-3 times the amount you borrow.

My initial thought was immediately cash in the endownment and just switch to a repayment mortgage.

The endowment could be a good one or a bad one. The monthly cost is probably a little lower on endowment mortgage than repayment (most common reason for taking an endomwent mortgage was that it was cheaper).

all that will happen at the end of the term in 13 years is that she will have paid £43500 off of the house and get nothing back.

Good for them. They will have borrowed the £43.5k and paid it all back plus interest and have a property that is worth many more times than that in value (at this point). If the endowment hits target then they would probably have been around £10pm better off than a repayment mortgage over that 25 year period.

They've claimed for the mis sold endownment a few years back and got £2500 but as with all money my parents attain, it just vanished!

A small amount like £2500 means that the endowment could be on track for a surplus (as calculation is based on surrender value and not current value. If surrender penalty is more than £2500, then the endomwent is in positive territory at that point).

Does anyone have any advice?

Yes. You shouldnt be giving them advice unless you know what you are talking about. Dont take this the wrong way but it is clear that you dont understand this subject and if you are going to be telling them what to do, then you could do more damage than good.

Have you done an endowment analysis? Who is it with? Where is it invested? are there any guarantees? what are the charges? what is the target growth rate? are alternative funds available? are modern alternatives a better option after costing differences? is switching to repayment a better option after costing the differences? What is the cost of replacement life cover (and CI if applicable) if endowment is cancelled? Are they tied in on a deal with their current mortgage? could they remortgage to a better deal or switch deals with the existing provider?

Energised

Well, I appreciate the advice but did you really need to be so patronising? We all have our area of expertise, clearly yours is finance and mine is not.

Thanks for the help.

I think I'll stick to the DFW forum!

Noz

Energised, with all due respect, dunstonh has given you excellent guidance and asked question that have to be addressed, please don't dismiss it.

Energised

Noz wrote:

Energised, with all due respect, dunstonh has given you excellent guidance and asked question that have to be addressed, please don't dismiss it.

I wont dismiss it at all, however I feel there are certain ways to impart knowledge, being a patronising *person* is not one of them.

Although ultimately it's all a matter of opinion, I'm probably being over sensitive because I've been shot down whilst trying to find information and help for my parents.

So I apologise for my comments.

EdInvestor

Hi Energise

Post some info about the endowment and we can see what may be best.

Company it's with
Guaranteed sum assured
Declared bonuses
Surrender value
Monthly premium
Maturity date
Maturity forecasts

Interest rate on mortgage


Your parents will probably need to ring up the lender to get some of this info.

Endowments are complicated beasts, that's for sure, and your first instinct about what to do with this one may well be correct - in the majority of cases it will be.

But not in all.There are some exceptions. So that's why we need more info.

BTW, if your parents managed to make a successful misselling complaint without help, they may not be quite as dim about money as you think

dunstonh

My post wasnt meant in a patronising manner at all. Everyone has their skills and areas of knowledge and it was clear that this wasnt yours. I cant decorate or do anything DIY to save my life. So, I wouldnt go around to my parents and put a shelf up.

A lot of good endowments have been surrendered because people didnt know that they were fine and a lot of bad ones are still being kept in the hope they will get better (unlikely with the bad ones). Giving your parents advice in an area you dont know about could put them in the position where they dump a good endowment and end up paying a lot more per month to clear their mortgage.