Endowment 'mis-selling' calculator

I've just done a very quick calculation using some very rough and ready figures and assumptions (capital paid off once per year, interest rates change once per year, repayments calculated once per year etc) and at 31/12/2006 you would have paid about 245000 and have 16000 still outstanding.

But this doesn't tell you if you were missold an endowment just because you could have done better by taking a repayment.

If you've maintained your "interest" payments at the 1984 level you'll have paid off a sizeable chunk of the capital now.

Tim.

Sorry, that was on a 100000 initial loan.

Tim.

wrote

And what length of mortgage term?

Thanks, just the sort of figures I wanted!

Agree about not proving mis-selling but I'm more than a little miffed with Norwich Union who have spent 4 years being unable to explain their annual statement of account so am going to go to the ombudsman if only for the fun.

NU's annual statement say I have 18,204 guaranteed (minimum life plus regular bonus)

But their Policy update letter says if I pay them 4 more years (1600) and get 4% growth then I will get 18,400

This is an improvement on previous years when they said I'll get less than the guaranteed amount with 4% growth.

In all my contacts with NU they admit the figures look very strange but they have been unable to explain them even after an official complaint.

Mark BR

25 years - I assumed that the loan was taken out on 1/1/84, first payment was made on 31/12/84 and the last payment will be made on 31/12/2008.

Calcs were done while eating lunch. I'll post a better explanation tonight if I remember.

Tim.

I personally have no time for NU at all but in this case it isnt their fault, it is the way the FSA tell them to do the annual letters which are meaningless for a w/p fund. Having said that they really should have somebody who knows how it is done.

Ok, here it is.

Base rate is (I think) the base rate as of 31 dec each year.

Interest rate is the borrowing rate. I've assumed that the interest rate on the mortgage is base rate+1%

Repayment factor is a term I've invented, I've no idea what the technical term for this is but it's the proportion of the outstanding capital that needs to be paid as a repayment this year in order to reduce the loan to zero at the end of the outstanding years. (I^(N+1)-I^N)/(I^N-1)

Capital is the outstanding capital Repayment is the repayments this year Total repayments is a cumulative total.

(I've hacked the columns a bit to get the data to fit in 80 chars so these are not correctly rounded in the last decimal place)

Note that the Repayment stays constant for the last three years - I've continued the current base rate - even though the repayment factor changes. This is what you would expect, a repayment mortgage with a constant interest rate should have constant repayments over its term.

Interest and repayments are assumed to occur on the last day of the year. Capital was loaned on 1/1/84. Note that for the years 84 to about

98 this is probably what actually happened. (I wrote to the Chancellor of the Exchequor about this at the time, had he made it a requirement that mortgages were calculated daily then he would have been paying out less in MIRAS AND mortgage holders would be better off. After MIRAS was abolished it made no difference to the chancellor but the interest started getting calculated daily anyway - bizarre!)

I've posted the spreadsheet (with a few extra columns) at:

The mortgage.sxc is the Open Office spreadsheet that I've been using. I've saved it as an xls file as well but I can't guarantee that it will work as my home is a Microsoft free zone and therefore I've got no way to test it

Tim.

p.s. I've had a couple of beers and nothing to eat yet. Therefore finding the mistakes is set as a challenge for the reader.

Date Base Intrst Years Repayment Capital Repayment Total rate rate factor repayments 100000 0

31/12/1984 9.75 10.75 25 0.11657 99092.12 11657.87 11657.87 31/12/1985 11.5 12.5 24 0.13286 98312.66 13165.97 24823.84 31/12/1986 11 12 23 0.12955 97372.80 12737.38 37561.23 31/12/1987 8.5 9.5 22 0.10992 95919.23 10703.98 48265.21 31/12/1988 13 14 21 0.14954 95003.70 14344.22 62609.44 31/12/1989 15 16 20 0.16866 94180.30 16023.99 78633.43 31/12/1990 14 15 19 0.16133 93112.63 15194.70 93828.14 31/12/1991 10.5 11.5 18 0.13386 91355.77 12464.81 106292.96 31/12/1992 7 8 17 0.10962 88648.95 10015.28 116308.24 31/12/1993 5.5 6.5 16 0.10237 85335.47 9075.66 125383.90 31/12/1994 6.25 7.25 15 0.11153 82004.43 9517.86 134901.76 31/12/1995 6.5 7.5 14 0.11779 78494.85 9659.90 144561.67 31/12/1996 6 7 13 0.11965 74597.52 9391.97 153953.65 31/12/1997 7.25 8.25 12 0.13441 70724.49 10027.31 163980.96 31/12/1998 6.25 7.25 11 0.13502 66302.63 9549.38 173530.35 31/12/1999 5.5 6.5 10 0.13910 61389.30 9223.00 182753.36 31/12/2000 6 7 9 0.15348 56264.12 9422.42 192175.79 31/12/2001 4 5 8 0.15472 50372.04 8705.28 200881.08 31/12/2002 4 5 7 0.17281 44185.35 8705.28 209586.36 31/12/2003 3.75 4.75 6 0.19544 37648.35 8635.81 218222.18 31/12/2004 4.75 5.75 5 0.23578 30936.24 8876.88 227099.06 31/12/2005 4.5 5.5 4 0.28529 23811.79 8825.94 235925.00 31/12/2006 4.75 5.75 3 0.37238 16313.92 8867.05 244792.05 31/12/2007 4.75 5.75 2 0.54352 8384.92 8867.05 253659.11 31/12/2008 4.75 5.75 1 1.0575 0 8867.05 262526.16