Please could someone explain to basics to an endowment mortgage and what it offers.

Wiggers316

Please could someone explain to basics to an endowment mortgage and what it offers.

Whats_your_forte

As mainly defunct now, perhaps this is best. Yes I can talk you through it all but I'd lose the will to live!!!

Good luck!

https://www.moneyadviceservice.org.uk/en/articles/endowment-policies

Thrugelmir

Basically two elements. Life assurance to settle the debt in the unfortunate demise of the applicant, or the first applicant if there's more than one. Then a savings element which providing investment returns meet their objectives over the term of the policy. Settle the outstanding mortgage debt at the end. 
For the term of the mortgage. The mortgage itself will be on an interest only basis. No capital will be repaid. 

In the 70's and 80's endowments and deriatives thereof were all the rage. Then in 1990 the Nikkei index crashed by 50% (Japanese stock market). As had reached unsustainable bubble territory for various reasons. The Nikkei has never subsequently recovered. Life assurance companies had huge sums of money invested in the Nikkei. As a consequence the endowment policies never returned the sums that were projected. Hence why as a repayment tool they lost faith with the consumer. 

SonOf

There is no such thing as an endowment mortgage.   It is two things that often is referred to as if it is one but it is not.   An interest only mortgage and an endowment policy.

The last mainstream endowment provider withdraw from new business in 2004.     Many consider endowments to have gone obsolete in the early 90s.    So, it it a on fashioned wrapper that can only be bought away from the mainstream and without advice (so its your own fault if you buy one).

We could write thousands of words on endowment policies.  So, maybe if you could give us some context as to why you need to know, it would help us focus on those areas.

 

Windofchange

My parents had one. They ended up having to sell our family home about 20 years ago as the endowment policy was pretty much worth next to nothing. Even if they did still exist, I would stay well away. 

Whats_your_forte

Versus lots of stories of those who paid the mortgage off and had a surplus. Not endorsing them in anyway but it was a product that was time critical.

SonOf

Whats_your_forte said:

Versus lots of stories of those who paid the mortgage off and had a surplus. Not endorsing them in anyway but it was a product that was time critical.

This is worth noting as prior to 1999, no endowment had fallen short.    I used to recall seeing maturities that were 10 times more than the target amount.    Part of the problem was the move from a high inflation, frequent boom/bust economy to a more stable low inflation one.   Most endowments prior to the 90s were built expecting the old investment return amounts and couldnt adjust to the change in the economy.   As mortgage payments went down, people should have been told to pay more towards their investment element or overpay the mortgage to make up the difference.  

Thrugelmir

SonOf said:

Whats_your_forte said:

Versus lots of stories of those who paid the mortgage off and had a surplus. Not endorsing them in anyway but it was a product that was time critical.

This is worth noting as prior to 1999, no endowment had fallen short.    

They were projected to provide a surplus though. Not just cover the repayment of the mortgage balance.  People might as well have just stuck with the old repayment method. As with PPI it was the commission on offer that induced providers to push such products. 60% of the first years premium and a 2.5% trail wasn't uncommon. Low cost endowments starting in the early -mid 70's. Bulk of maturies by default would have been after 1999. As for many a 25 year mortgage term was the default. 

Silvertabby

SonOf said:

Whats_your_forte said:

Versus lots of stories of those who paid the mortgage off and had a surplus. Not endorsing them in anyway but it was a product that was time critical.

This is worth noting as prior to 1999, no endowment had fallen short.    I used to recall seeing maturities that were 10 times more than the target amount.    Part of the problem was the move from a high inflation, frequent boom/bust economy to a more stable low inflation one.   Most endowments prior to the 90s were built expecting the old investment return amounts and couldnt adjust to the change in the economy.   As mortgage payments went down, people should have been told to pay more towards their investment element or overpay the mortgage to make up the difference.  

The writing must have been on the wall in 1994.  When we asked our bank (Lloyds) for a mortgage the advisor explained the difference between repayment and endowments - but recommended that we went the repayment route as he believed that endowments would struggle to meet their 'promises'.  We took his advice.  

Whats_your_forte

I only wrote one Endowment policy. On that, I received a complaint.

The client was a young girl who had been told to take out the policy for her mortgage by her Mum (present at the meeting) as the Mum had received a lovely surplus on top of the mortgage being paid off. 

The new policy didn't perform anything like they wanted and cancelled and switch to a repayment and then followed the claim process saying I'd mis-sold it. We had repayment illustration and interest only on file as well as noting it was on the Mum's advice about her own Pearl policy that the daughter took out the Endowment.

Complaint was rejected and I suggested to the client she takes it up with her Mum!

Old_Lifer

My post of  17th September 2019 (thread title 'Aviva Low Cost Endowment') may perhaps be of passing interest as it gives my own experience of how low-cost endowment projections were calculated in the 1970's and how the shortfalls came about.

My typing ability is not great nowadays and it is easier  for me to refer to a previous post rather than type a lengthy new post.