Endowment shortfall and re-payment

In article , Peter Harding writes

I dont think anybody could advise increasing endowment payments - there are no guarantees that the same wont happen again.

In respect of 2) if you surrender the endowment, how much could this knock off your mortgage? Then work out what the repayments would need to be with a repayment mortgage for the balance over 17 years. You will then see how your monthly interest plus £126 compares with what is needed.

This isnt the answer, just part of the decision making process.

Personally, I have an interest only mortgage with no repayment vehicle. I am confident that I will be able to sell, pay of the loan, and buy smaller, or a cheaper location, when the time comes. Not that I could recommend this option - it's potentially very risky.

This is the approach commonly referred to as "throwing good money after bad". Not to be recommended unless you think it's not really bad, in which case you might feel deep down that the warning is just a formality and that the shortfall might not happen, or might not be as severe. A lot can happen in 17 years.

You will lose a lot by doing this. Even if you stop the contributions (see (4) below), the loot that's locked up inside the fund can still be expected to grow faster than when you transfer it into the debt, and the transfer process will probably cause some shrinkage too, in terms of cancellation penalties.

1. leave the endowment in place and keep paying the premiums. Convert your interest-only mortgage to part-and-part, so that you would in effect have a £16k repayment mortgage running alongside an interest-only one for £38585. This would involve paying about £51/month more instead of £46/month more, because the loan rate is smaller (I've assumed 4.8%) than the growth rate of 6% you have used to calculate the £46. This is less risky because the value of your virtual savings (reduced debt) cannot go down, unlike your investments within the endowment.
2. (better than (2) but I still wouldn't do it) stop paying endowment premiums but don't cash it in, i.e. make it "paid up". The value in there now will continue to grow at whatever rate (maybe 6%), but the £80/mo can them go into repayments as above, together with a suitable top-up.

SO, their performance is really crap so to make up for that, an option is to pay them even more money? I dont think so! Scratch that one.

Possible.

You missed an option

3) Overpay your mortgage and keep the endowment.

I'd like to know what fund(s) the endowment is invested in first, then we can make a guess at how well/bad its going to do. I agree with your view on 1. 2. depends on what the fund is invested in, (it could be a cash deposit fund, albeit unlikely). 3. depends on the fund but charges and expensive mortality charges would lead me to disagree with you and

1. possibly has more merit than you give it, but again it depends on the funds.

PETER, can you tell us what the fund(s) is/are please? Your ages and smoking status would help as well. Also, have either of you had any medical events since you took the endowment which could make obtaining replacement life cover more expensive? (Assuming you need to replace the life cover that is)

In message , Peter Harding writes

I would carry on with the endowment, assume there's going to be a shortfall of 16K and calculate what the additional payments would be if that amount of your mortgage was capital and interest rather than just capital. Then pay the extra capital amount towards your mortgage on top of your regular payments and by the time the endowments ends the 16K shortfall will have been met.

Of course 16K in 17 years time should be easier to make up as a shortfall than it would in todays terms, allowing for wage rises etc.

Unless Holmes is right and inflation goes negative.

obtaining

John, the funds are invested in:

50% unitised with profits fund 50% managed life fund

I am 35, my wife is 34 and we are both non-smokers. There have been no medical events since that could increase alternative live cover.

Looking at the replies, I'm tempted to convert £16k of my interest only loan to re-payment. The monthly increase is almost the same as the suggested endowment increase. I would continue with my £80/month emdowment and therefore have a payout in 17 years time. What do you think?

Peter, I'm in a similar situation. Unit-linked endowment with L&G started

7 years ago for £54k that has a projected shortfall of £16k in 15 years. Also have a standard capital+interest repayment for £70k that I've just changed to an offset mortgage as I need flexibility with my monthly payments (only the interest payments are mandatory) and some additional borrowing in the near future. I've decided to increase my capital repayments on the offset to cover the shortfall, if the endowment pays out more (currently the monthly £60 buys a lot of cheap units that could then rise in value over 17yrs) then I'm quids in, but I have the security of knowing the shortfall is covered. Hope this is useful.

Graham