Mortgages ...

About Endowment Mortgages

Endowment mortgages continue to be a concern for many people who took these out in the 1980s and 1990s. However, the portability and flexibility of this type of repayment vehicle with your mortgage is often forgotten – please see the graphs.

How does it work?

With endowment mortgages, the monthly mortgage payments pay only the interest on the loan, not the capital. Instead, the mortgage holder pays into an endowment policy, with the cash invested with the intention of making it grow enough to repay the original loan at the end of the mortgage term.

But because the growth of investments, such as stocks and bonds, varies, there is usually no guarantee that the policy will grow enough to repay the mortgage. The stock market’s performance means that this is particularly a concern for people who took out these mortgages in the 1980s and ‘90s.

If in doubt what should I do?

If you have an endowment mortgage and are concerned about whether it will pay off your mortgage, it is vital not to make any hasty decisions.

If your endowment provider has not been in touch to tell you whether your policy is on track to repay your mortgage, contact them now to find out where you stand.

It is advisable never to cash in your endowment policy or stop your payments without establishing your position and taking proper financial advice, because you could lose out if you do.

Beware of Pitfalls

For example, switching to a repayment mortgage ten years after taking out your endowment mortgage, for a new 25-year term, will mean you that you pay ten years of mortgage interest all over again.

For no obligation consultation on your existing policy call David Joyce on +44 (0)870 442 9737

Considerations

Options to deal with a potential shortfall include switching the shortfall part of your endowment policy to a repayment, or putting extra savings aside, but it is essential to seek professional advice, especially as more policies are coming on track on annual assessments.

Portability of your Endowment Policy

Because of changes to the legislation concerning this type of mortgage, the Airline Mortgage Company does not provide advice on new endowment policies. However, because of the experience we have developed after nearly 21 years in the industry, we do understand the concepts and are happy to discuss your concerns.

The reason why endowment policies show a shortfall is mainly theoretical and not actual. Most endowment policies when taken out in the 80’s and 90’s provided a estimated growth rate around 7%. Your premium would have calculated on this assumption.

When the government authority reviewed endowment policies with the fluctuation of investment performance, it was recommended all policies be requested at a rate of 6%. Therefore automatically their new assumed growth rate would provide a shortfall on paper.

If you are concerned on the actual rate of return on your endowment, please contact your endowment provider. Should you wish us to contact your provider on your behalf; we will need your written authorisation for this. The Airline Mortgage Company will charge no fee for this service.

This example is based on a married couple (both aged 29) choosing a 25 year mortgage of £50,000, with life and critical illness cover. The male is a non smoker and the female is a smoker.

25,000 with an endowment policy with combined life and critical illness cover.

Compare this to a repayment