Endowment Mortgages  Managing

Endowment Mortgages

On a monthly basis, the borrower pays interest to the lender, plus an additional amount into an endowment policy...

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With more than 8 million endowment policies still to mature, it is unsurprising that so many individuals are concerned about the potential value of their policy, on maturity. Theoretically, the endowment policy investment should be sufficiently large to pay off the entire capital of the mortgage and, ideally, also generate a windfall gain.

Unfortunately, this is not so in 70 percent of cases and, as such, being able to determine the potential extent of the shortfall as soon as possible is important. This allows a recovery plan to be put in place, at the earliest opportunity.

Endowment Policy Statements
All endowment policy holders received a re-projection letter or endowment statement, every two years. These letters are colour coded green, amber or red. Green means that the endowment policy is on track to repay the capital amount, PROVIDED that the value continues to rise by at least 6 percent a year for the remaining years of the policy.

Amber means that there is a reasonable danger of shortfall and red means that there is a substantial danger of shortfall.

Reacting to the Re-Projection Letter
For those who have been notified that their endowment mortgage is not likely to attain the capital value that they had originally anticipated, they are now faced with multiple options on what can be done to address the situation.

Recovery Options
Many endowment policy holders feel inclined to surrender their policy and take up a repayment mortgage. This is not always the most financially viable option, as surrendering will mean that the policy holder loses any terminal gain from the life assurance, at the end of the term, which in some cases can amount to over half of the total value.

Other options include selling the endowment policy which often produces a better return than surrendering and allows the policy holder to put the value that the policy is sold for towards making up the capital value. Of course, if this option is taken, an alternative mortgage policy will be required to pay off the rest of the capital.

Finally, it is possible for an endowment policy holder to maintain their policy, but to begin an additional saving plan such as an ISA in order to ensure that they have a secondary resource available to pay off the capital value at the end of the term.

Whilst doing any of the above, it is also possible to be making a claim for the mis-selling of the endowment policy from the original provider, if applicable.

Summary
Bullet Point All endowment policy holders will receive a re-projection letter telling them of the likelihood of their policy making the necessary capital value; and
Bullet Point having received the letter, there are many options available to make up the shortfall, but quick action is required.

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