Endowment shortfall

venetianlagoon

I was chatting with my parents the other night and they were discussing their mortgage.

They had a 30 year mortgage with Nationwide and over the years have increased it to add an extension, loft conversion, conservatory etc. They have just under 3 years left to pay it and it is part repayment part interest only. For the last few years to offset an expected shortfall in their endowment they have been making overpayments.

They have a reserve fund of approx. £15000. They currently owe approx. £60,000 inc the res fund, and the house is probably worth £275,000.

They know the endowment will have a shortfall but not of how much. They wondered if the shortfall was say £20,000 even after the overpayments what would happen?

Dad will be 55 when the mortgage ends and earns around £80,000pa. Is it likely that they could just take out a new mortgage for the shortfall or extend the term of the current one? If the latter when should they approach the B/soc now or nearer the time.

It is possible they may decide to downsize before then anyway so the situation may not arise.

holly_hobby

The lender (if affordability is proven) may allow a 5 yr extension to repay the shortfall, its usually also convered to a repayment basis.

If they don't permit this, which is unlikely under TCF regs if parents have the income to service - they can seek a remortgage, or indeed a new mge with Nwide (status and available term permitting).

Top redemption age of oldest application (with suitable income in retirement) is 75 yrs, although there are a couple of lenders whom don't have the upper age celing (affordability permitting of course) - but I do suspect NWide will permit them an extension.

Hope this helps

Holly

venetianlagoon

Thank you, I didn't think it would be a problem, but they were musing about it when I called round so I thought I would ask the experts on here.

Is it time enough to flag this up as an issue when they get the figure the endowment will pay out or should it be done as early as possible?

warwicktiger

The earlier it is tackled the easier a repayment solution will be

holly_hobby

Personally, I would make the lender aware at this juncture that there may possibly be a shortfall to target value of the endowment - as you won't know for sure until maturity when all bonuses (including any terminal bonus) have been added.

I would also, if at all possible, keep making lump sum reductions (within erc free paramaters) as frequently as possible to also try and negate the possible fall out from a poorly performing endowment - and if it performs better than expected they will have a nice lump sum they they didn't expect. (the other option (again affordability based) would be to tsf to a repayment basis an element of the mge at least equal to the projected shortfall.

Holly xx

pjread

3yrs to go on 60k at I'd guess negligible interest with at least one 80k earner? I expect if push came to shove they could clear it in that and take the endowment proceeds as a bonus when it matures..

opinions4u

They know the endowment will have a shortfall but not of how much.

They get a statement every year giving them some strong clues.

What does the most recent one say?

patacake58

venetianlagoon wrote: »

I was chatting with my parents the other night and they were discussing their mortgage.

They had a 30 year mortgage with Nationwide and over the years have increased it to add an extension, loft conversion, conservatory etc. They have just under 3 years left to pay it and it is part repayment part interest only. For the last few years to offset an expected shortfall in their endowment they have been making overpayments.

They have a reserve fund of approx. £15000. They currently owe approx. £60,000 inc the res fund, and the house is probably worth £275,000.

They know the endowment will have a shortfall but not of how much. They wondered if the shortfall was say £20,000 even after the overpayments what would happen?

Dad will be 55 when the mortgage ends and earns around £80,000pa. Is it likely that they could just take out a new mortgage for the shortfall or extend the term of the current one? If the latter when should they approach the B/soc now or nearer the time.

It is possible they may decide to downsize before then anyway so the situation may not arise.

Good advice given on here op, hope your parents got it sorted:)

venetianlagoon

Yep, thanks, they did. They will pay any shortfall from savings. My Mom wants to build a house from scratch tho and there are loads of plots in Ireland so I guess they will prob do that.

patacake58

Thanks for the update, hope things go well for you.