IO mortgage with dud endowment - options

shorthdt

Hi,

We have 8 yrs of our mortgage to run – the shortfall on ourendowment will be @ £25k.

Our current deal ends this month – we are considering our options

1. Take the best current deal, keep paying the endowment but also set up an investment plan for the outstanding amount.

2. Move to a repayment mortgage – in part or in total. Am wary of this – have read some press saying banks are tightening lending requirements to their more mature customers and that some borrowers are being coerced into moving to some form of repayment mortgage.

3. Release some equity from the property, ifpossible – LTV is @ 35%.

4. Extend the mortgage term.

5. Other ?

Any advice is most welcome.

Thx

CKhalvashi

For the sake of £25k over 8 years, I'd be tempted to hit the repayment button, but that's just me.

Someone else will probably give a different opinion.

CK

ValHaller

2 is circular logic. You are wary of a repayment mortgage because the bank might coerce you on to a repayment mortgage. But face up to it - now rather than later - you have to find £25000.

3 is effectively meaningless. To release equity to pay off the shortfall on the mortgage, you have to .... er .... take out another mortgage.

4 is not enough on its own. Extending an IO mortgage only postpones the problem but still leaves you with the problem of finding the shortfall. Fortunately you have woken up to this with 8 years to go, so £25000 can be covered with an extra £250/month. Leave it to 2 years and you are looking at finding £1000/month. You have to find more money over and above the interest.

At this point, I suggest you make a judgement on whether the endowment should stay or whether you are better off cashing it in and putting it to the mortgage. You already know you are expecting £25k shortfall - while that is a guess, at least the guessing is done - but do double check whether there is a Mortgage Repayment Guarantee first. If there is no guarantee, then look at how much you would get by cashing in the endowment and look at the shortfall if you put the endowment to the mortgage now and put the endowmwnt premiums to the mortgage as well.

Once you know where you stand with the endowment, you can cut your cloth to suit. If you keep the endowment, convert £25000 of the mortgage to repayment or plan to overpay £3000/year. If you cash in the endowment, then convert the whole mortgage to repayment and look at extending the term.

This looks hard, and you may be tempted to put it on the 'too hard' pile. Fair enough if you do - but make sure you overpay £250/month until you sort it out