Endowment - really that bad?

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owen_money
owen_money Posts: 764 Forumite
in Mortgages & endowments
I have an endowment maturing next month, was designed to pay out £62k, but predictions are £47k. Mortgage was part and part. From my understanding the endowment has under achieved due to interest rates being at an all time low? However as they are low I've paid less interest on my mortgage, from 6% to 3%. I've done some rough figures and it shows I've saved £44k, do you think that right or have i missed something? In the end it doesn't really matter, I've had to pay, life is life. Will be mortgage free soon :)


Assume interest rate 6%

Interest only £62,000 Paid back £155,000
Repayment £26,000 Paid back £50,226

Total £205,226


Assume interest rate 3%

Interest only £62,000 Paid back £108,476
Repayment £26,000 Paid back £36,983

Total £145,459


Difference £59,767
Less shortfall £15,000

Saving £44,767

Thoughts?
One man's folly is another man's wife. Helen Roland (1876 - 1950)
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  • dunstonh
    dunstonh Posts: 116,371 Forumite
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    but predictions are £47k.

    Predictions or projections? providers issue projections. Predictions have a different meaning.
    From my understanding the endowment has under achieved due to interest rates being at an all time low?

    No. Endowments had a target growth rate. The old UK economy of frequent boom/bust and higher inflation meant returns before inflation were quite high. So, the target growth rates were set on 70s and 80s levels of growth. As the economy moved to a more stable low inflation basis, the returns before inflation lowered significantly. This was great for mortgage payers on their interest but not great for those with regular contribution investments with target growth rates set at the old levels.

    Endowments didn't fail as returns were poor. They failed as they had unrealistic target growth rates and were not flexible enough to adjust and people were not informed enough to make up any difference.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    How much did you pay into your endowment in total?
  • amnblog
    amnblog Posts: 12,443 Forumite
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    A refreshing attitude.
    I am a Mortgage Broker

    You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
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    Agreed. OP see my post here https://forums.moneysavingexpert.com/showthread.php?p=74321983
  • owen_money
    owen_money Posts: 764 Forumite
    edited 25 May 2018 at 9:05AM
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    dunstonh wrote: »
    Predictions or projections? providers issue projections. Predictions have a different meaning.



    No. Endowments had a target growth rate. The old UK economy of frequent boom/bust and higher inflation meant returns before inflation were quite high. So, the target growth rates were set on 70s and 80s levels of growth. As the economy moved to a more stable low inflation basis, the returns before inflation lowered significantly. This was great for mortgage payers on their interest but not great for those with regular contribution investments with target growth rates set at the old levels.

    Endowments didn't fail as returns were poor. They failed as they had unrealistic target growth rates and were not flexible enough to adjust and people were not informed enough to make up any difference.

    Predictions or projections? Ok sorry I don't know the correct terminology

    I've one month left on the endowment, a month ago they said its current value was £47k - ok it can down or up a bit


    I agree no body really explained that there could be a change in inflation that could have a drastic effect on the value, but if you could predict it you'd be a rich man.


    I appreciate your explanation, but in lay mans terms to me its because there was a change in interest rates, hence poor returns, but agree the projections were set too high


    Don't get me wrong, I dont agree with how they sold it, but its the old adage if it sounds to good to be true it probably is.
    People wouldn't be complaining if the plan had over achieved and were driving a new car when the plan finished, as we were all told we would. I'm just looking at it a different way, overall I've probably saved a bit, although I've had to make overpayments to finish the mortgage, which I am lucky to be able to afford
    One man's folly is another man's wife. Helen Roland (1876 - 1950)
  • owen_money
    owen_money Posts: 764 Forumite
    edited 25 May 2018 at 9:02AM
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    Thrugelmir wrote: »
    How much did you pay into your endowment in total?


    I just thought about that on the way into work (sad I know)


    I've paid in £25,800, so take that away from the £44,767 I estimated I've saved on interest and the actual is


    £18,967



    So still a saving, and I'm sticking with that as it makes me feel better :)
    One man's folly is another man's wife. Helen Roland (1876 - 1950)
  • Preacher64
    Preacher64 Posts: 90 Forumite
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    I would agree. It!!!8217;s a bit of swings and roundabouts. Our endowment paid less than target but more than the annual forecasts and, even with changing to part repayment on the basis of the shortfall warning, we still consider ourselelves to have had a bit of the best of both worlds. Now mortgage free with the pressure off and able to plan for early retirement with a secure roof over our heads.
  • owen_money
    owen_money Posts: 764 Forumite
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    AnotherJoe wrote: »
    Agreed. OP see my post here https://forums.moneysavingexpert.com/showthread.php?p=74321983

    Yes you are right, IO was lower so it was more affordable, especially when interest rates were 15%.
    One man's folly is another man's wife. Helen Roland (1876 - 1950)
  • owen_money
    owen_money Posts: 764 Forumite
    edited 26 May 2018 at 4:32PM
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    Preacher64 wrote: »
    I would agree. It!!!8217;s a bit of swings and roundabouts. Our endowment paid less than target but more than the annual forecasts and, even with changing to part repayment on the basis of the shortfall warning, we still consider ourselelves to have had a bit of the best of both worlds. Now mortgage free with the pressure off and able to plan for early retirement with a secure roof over our heads.

    It's good to see not everyone is of the opinion we were all done over. All in all its worked out ok for me, just not what was predicted. Nothing in life is certain -- ok taxes and death.
    One man's folly is another man's wife. Helen Roland (1876 - 1950)
  • dunstonh
    dunstonh Posts: 116,371 Forumite
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    Had this site existed back in they day, it would have had an endowments best buy article.

    The media were pro endowment. Which? (Consumers Association) also had a best buy endowment. Its easy to look back with hindsight and decide the alternative was better.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
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