Endowment Guarantee. Worthless ?

Crazy_Saver

Originally posted by dunstonh
Interest rate changes still require the monthly repayment to change though. Unless you make those changes, the mortgage is not guaranteed to be repaid. Rate of return changes on investments should have seen the endowments react to that rather than bury their head in the sand.

Hi dunstonh.

As much as I agree with so much that you say, isn't this linked to one of the main reasons for people complaining about mis-sold endowments?

When we took out our endowment mortgage, we completely understood about the effects of interest rate rises and falls. Most people (I assume)are or were aware that their interest payments could fluctuate but we, and no doubt many others, had no idea that our endowment payments were expected to fluctuate in order to keep the policy on track!

We really thought that our £71.20 payment was for the life of the policy and that it would cover the original loan and more!!!:mad:

jamesd

If you think that dunstonh thinks that endowments are a good thing today you haven't been paying enough attention to his posts. He routinely describes them as an obsolete product and reglarly suggests that people move out of them where the investments are of poor quality.

I'm not surprised that people thought that the endowment policy payment was fixed, even though the one I read said that the monthly payment would have to be changed when told to change it if the guaranteed sum was to be reached.

Economies change. Interest rates fall, that also reduces returns on investments. The mortgage interest payments go down while the endowment (or ISA or whatever other) investment amount to keep on target increases. Seems reasonable enough to me.

It would be interesting to know if the new endowment payment is greater to less than the difference between repayment and interest only for the mortgage. If it's less it's still cheaper than a repayment mortgage. If it's more, we won't know which is cheaper until the end of the endowment term, when we find out if the value at the end is greater than the target and by how much.

Quadrupling the monthy payments seems likely to take them well above the repayment mortgage extra cost in the short term. I wonder how the total cost of interest plus endowment after that compares to what it was originally.

vinno65

jamesd wrote:

If you think that dunstonh thinks that endowments are a good thing today you haven't been paying enough attention to his posts. He routinely describes them as an obsolete product and reglarly suggests that people move out of them where the investments are of poor quality.
.

I have been reading dunstonh's posts for some time, and where he might sometimes suggest getting rid of endowments often times he talks about ridiculous projections that firms have had to make using fsa figures and seems to suggest that many endowments will go on to pay a surplus. This is why I have asked him to comment on the above article in moneymail.

jamesd wrote:

I'm not surprised that people thought that the endowment policy payment was fixed, even though the one I read said that the monthly payment would have to be changed when told to change it if the guaranteed sum was to be reached..

Then it seems you were one of the lucky ones that had a compliant sale and knew exactly of the risks you were letting yourself in for.

.[/QUOTE]
Economies change. Interest rates fall, that also reduces returns on investments. The mortgage interest payments go down while the endowment (or ISA or whatever other) investment amount to keep on target increases. Seems reasonable enough to me..[/QUOTE]

Which is exactly what endowments were designed for, including smoothing etc., so why the threat of shortfalls and why on earth should someone pay more in premiums when they were told at the point of sale that so long as the kept up the premium their mortgage would be paid with a lump sum on top.

jamesd wrote:

It would be interesting to know if the new endowment payment is greater to less than the difference between repayment and interest only for the mortgage. If it's less it's still cheaper than a repayment mortgage. If it's more, we won't know which is cheaper until the end of the endowment term, when we find out if the value at the end is greater than the target and by how much.

Quadrupling the monthy payments seems likely to take them well above the repayment mortgage extra cost in the short term. I wonder how the total cost of interest plus endowment after that compares to what it was originally.

Exactly what i would like to know. Dunston keeps making the point that endowments are cheaper than repayments which is why many people were advised to take them. Now I know that they are generally cheaper on a monthly basis but what is the overall cost in outgoings over the 25 year term.

regards Vinno

EdInvestor

Crazy_Saver wrote:

Most people (I assume)are or were aware that their interest payments could fluctuate but we, and no doubt many others, had no idea that our endowment payments were expected to fluctuate in order to keep the policy on track!

They weren't, unless it was a "low start" policy, in which case payments went up by a specific amount over a specific period.

Sounds like someone's attempting to move the goalposts to me.

Crazy_Saver

Originally posted by EdInvestor
Sounds like someone's attempting to move the goalposts to me.

What do you mean EdInvestor?

Do you mean that I'm trying to move the goalpoasts?

We have a low cost (not a low start) 25 year policy, premiums £71.20pcm which we assumed would cover a £60k mortgage plus a lump sum at the end of the term. When we took out the policy, we really were not made aware that the premiums may have to rise in order to avoid a shortfall (currently about £32k). If we had taken their advice, we would be paying hundreds more per month to keep it on track. Instead, we have converted to part repayment although the shortfall has now outgrown the difference that we converted over:o

jamesd

EdInvestor, no goalpost moving in the one I looked at, which is currently a few months short of maturing after 25 years.

vinno65, the tax treatment of endowments was changed under them and then the companies were forced to move from high growth to low growth investments for much of the existing money. The story isn't a surprise. What will be interesting is seeing how many recover, possibly with the use of extra contributions to put the money in better investments.

In this specific case it's worth looking at the current value, seeing if there is a resale market and considering whether keeping the money in the endowment beats selling and putting the money somewhere else, which may not have the investment restrictions.

defender_of_the_weak

To the original poster on this thread, yes you were mis-sold. The 'guarantee' was basically your commitment to writing a blank cheque as and when required. If increasing your premiums means the tax benefits may be lost then this is clearly not what you thought you were buying. If your broker has gone you may be able to claim from the FSCS

bugeyed

dunstonh wrote:

For example, someone that has seen their mortgage payments drop by £150 a month because of the changes in economic cycle wouldnt have minded putting up their endowment by £25pm because the changes that aided interest rates to drop were detremental to endowments.

hmmmm....but here we are talking my endowment company requesting i go up from £78 a month to $320 a month with 10 years still to go....quite a rise :mad:

EdInvestor

Crazy_Saver wrote:

What do you mean EdInvestor?

Do you mean that I'm trying to move the goalpoasts?

No not you, the provider.

We have a low cost (not a low start) 25 year policy, premiums £71.20pcm which we assumed would cover a £60k mortgage plus a lump sum at the end of the term.

Normally, a conventional endowment is guaranteed to pay out the guaranteed sum assured and the declared bonuses at the end of the term, assuming you keep paying the premiums to maturity.

This amount may not be the same as the mortgage amount borrowed. The policy may need an additional terminal bonus to meet the mortgage amount, and this may not now be there, hence the shortfalls.

Does the original poster mean that the provider is refusing to pay out the guaranteed value of the policy (as above) unless he increases the premiums?

bugeyed

Yes, Scottish life are telling me in the letter that unless I increase the amount I pay by nearly 4 times the original, that the guarantee won't be valid. The original policy was sold to me on the understanding that it was guaranteed to pay off the mortgage. This was something I needed because I was low paid at the time and could not afford to increase any premiums. It was a low start policy (which is another complaint i could have as I didnt realise this would mean I would pay more to get less in the long term). Seems to me that scottish life with this guarantee definitely get to have and eat ALL the cake :rolleyes: