Payments on endowment paid before switching - what happens them? 21 January at 5:02PM in Mortgages & endowments 3 replies 71 views

Elaine853

Sorry for a rambling question but just wanted to give some context to my question.

I took out an endowment mortgage in 1996 on the strong advice of the mortgage adviser.  He told me clearly that there were 3 risks - low, medium, high - but he told me that he wouldn't even discuss the high risk element because it was guaranteed that my mortgage would be paid in full by the endowment (medium) or most likely I would pay off the mortgage with an additional payout too.  This didn't surprise me because my parents' mortgage had seen them receive money at the end of the term - it paid for their conservatory!

Eight years later, I received a letter to say that the forecast was that at the end of the mortgage term I would owe basically the same amount of money as I paid for the house - so I would have paid 25 years of monthly payments for nothing.  I wasn't able to get advice from the original broker as he had closed the office.  I tried to claim at the time but because he had ticked all 3 boxes to say he had told me about the risks I wasn't entitled to any compensation.

My question is, I paid in 12 monthly mortgage payments every year for 8 years (96 months x £300 = £28,800) before starting again with a new 25 year mortgage in 2004 - what has happened to all the initial payments?  Are these lost forever or are they being held somewhere? 

Nothing was explained at any time and I'd never had a mortgage before.  

Any advice gratefully received.   I should have finished payment by mortgage last year but still have 7 years to go  

user1977

With an endowment mortgage you would normally be paying (a) interest to the lender on the amount borrowed (which effectively wouldn't change because you're not making any capital repayments), and (b) premiums for the endowment policy, which was supposedly aiming to be worth as much as the amount borrowed by the end of the term.

So I am guessing the £300 payments were just interest, in which case what "happened" to them was the bank took them as the price for lending you the money. But you should also have an endowment policy, which might not be worth what it was forecast to, but will be worth something (unless you've already cashed it in or sold it).

MorningcoffeeIV

Elaine853 said:

Eight years later, I received a letter to say that the forecast was that at the end of the mortgage term I would owe basically the same amount of money as I paid for the house - so I would have paid 25 years of monthly payments for nothing.  

That's correct, as the endowment would them hopefully clear the capital borrowed at the end of the term. You weren't paying for nothing - you were paying towards clearing your mortgage at the end of term, and clearing the interest each month..

Did you stop paying into the endowment?  You need to get an up to date statement for your policy to see how much is in there and when you will receive it.

dunstonh

Eight years later, I received a letter to say that the forecast was that at the end of the mortgage term I would owe basically the same amount of money as I paid for the house - so I would have paid 25 years of monthly payments for nothing.

That is not a correct understanding. Typically, an endowment mortgage (interest only plus endowment) was cheaper than a repayment mortgage. Often by around £20pm.  So, if the endowment hit target with no surplus, you would still be better off than a repayment mortgage.

My question is, I paid in 12 monthly mortgage payments every year for 8 years (96 months x £300 = £28,800) before starting again with a new 25 year mortgage in 2004 - what has happened to all the initial payments?  Are these lost forever or are they being held somewhere? 

The mortgage payments were the interest only.  The payments to the insurance company were for the endowment.   When you did you stop paying them?