# Mortgage endowment complaint

I have been offered £15,698.44 (surrender value being £10,476.15) for
an endowment policy from Friends Provident which I complained I was
mis-sold. The policy was to cover a mortgage of £34,654 taken out in
August 1987.
This will leave me with a mortgage of £18,955.55, which will be
converted to repayment to pay off the mortgage in August 2013. I have
calculated that this will give me a monthly repayment figure of
£216.75. Interest only is £108, I will no longer need to pay the
endowment premium of 49, but will need life cover at about £6. This
will mean my repayment will increase by £65.75. A total of £6,838
over the remaining period.
The figure of £15,698.44 is what Friends Provident say I would have
paid off the mortgage so far. What I am finding difficult to
understand is if they are putting me in a position I would have been
in had I taken out a repayment mortgage why do I find myself having to
find £65 per month extra now.
I am having trouble getting someone to check the figures for me. I
have contacted several IFAs none of which can offer help with the
calculations used as they say it requires specialist software. The
sum Friends Provident say we have paid over the years is 52415.15 I
calculate that we have paid about £3,000 more than this over the
years, but I'm not sure this would make any difference to the figure
offered.
I would like to know if this offer is reasonable. I do not want to
complain to the ombudsman and find myself with a worse offer.
THANKS
Bitstring , from the wonderful person eve said
Because, on a repayment basis, you should have been paying more since day1 in order to clear the balance by the end of the period?? Why don't you ask FP to 'show you their workings', that would be easier to check than trying to pluck numbers out of thin air.
A cursory glance at the numbers -- looks like you have been paying £43/month for 'investment' (taking off the £6 which you say is what the life insurance element would cost). That's ~£500/year for 16.5 years, i.e. about £8.3k .. seems that getting back £15.6k is not a bad rate of return (but your opinion might differ).
Was the endowment originally scheduled to mature in 2013? That seems to be a 26 year term, which is a little unusual. Or did you elect to go for a 10-year instead of 9-year repayment last year because the monthly amount payable on the latter would have been too uncomfortable?
£108 for £18956? That's over 6.8%! Can't you do better than that?
A bit under half for 15 of 25 (or 16 of 26) years seems reasonable enough, subject to what interest rates they assume would have been charged over the period.
Ah, that's easy. It's because short term repayments cost more (relative to interest-only) than long term repayments do, simply because the repayment of the capital borrowed is spread over a shorter time. If you pay interest only, your debt will remain at £18956 forever. You still have to repay this sum over 120 months, which ought to cost you £158 per month on top of the £108 interest. Except, of course, the compounding and saving of interest due to a reducing balance mean you actually *only* pay £217 instead of £266.
All other things being equal (notably the interest rate, but we can't really tell because we don't have a record of what the rates were when you took out the loan, and what ups and downs they've been through since then) you should expect to be paying the same per month now as you would have been paying per month with a repayment from the outset. In other words, had the interest rate been the same as now since the outset, you would have been paying £217 a month for the full 300 month term for the full £34654.
Specialist software? Poppycock! All it needs is a detailed record of interest rates your lender(s) would have charged you.
Certainly, from the scanty information given, it doesn't look at all unreasonable.
And so it damn well should. £43/month for 198 months is £8.5k right enough, but only if you stuff it under the mattress. If you invest it you expect rather more, and as it happens £15.6k is pretty well spot on what you'd expect at monthly growth equivalent to 7%pa.
Bitstring , from the wonderful person Ronald Raygun said
Which is what I said .. so why are you agreeing with me so violently? (Actually it's more like 6%, but that's NET, and I don't think I've managed that well on cash savings over the last 16.5 years).
Actually I was disagreeing. You seemed to be saying that £15.6k was pretty brilliant ("not bad" being an understatement) compared with the mattress method, as if the mattress was somehow a contender for at least half a brownie point. I just meant to point out it's merely mediocre.
Doubting my arithmetic? OUTSIDE!!

Now look here. 7% annual growth => monthly factor f=1.005654. (f^198-1)/(f-1) * £43 = £15619.
TAKE THAT!
Do the same with 6% and you only get £14271.
Let that be a lesson to you.
Bitstring , from the wonderful person Ronald Raygun said
Nope, you leapt to an incorrect conclusion. 'Not a bad RoR' means just what it says. Not bad. If I'd meant 'brilliant' I'd have said, let me see, something like 'brilliant'.
You're missing half a year .. it's well past August 2003, so you need to swap your 198 for something more like 204 or 205.
OOOps I meant to say 2012 which would be 15 years
Sorry I did not explain myself very well, the 108 represents the interest only on the whole mortgage of 34654, presuming I do not accept the offer. I got the other figure from an online repayment calculator to work out the repayment over the term left ie 8yrs 8 mths.
I have spoken to 5 local IFAs none of whom could offer any help. I do have a record of the interest rates paid over the term of the mortgage.
You're missing your 12 times table. Mine has 198 right there, slap bang next to 16.5. August 1987 plus 198 months equals February 2004.
You're a silly Billy. What are you?
NO IT wouldn't it would be 25
Bitstring , from the wonderful person Ronald Raygun said
OK, I'll give you that one. That makes it even 'less bad' than I originally thought .. 7%, tax free.
OK (and noted you mean 25).
Can you clarify. The offer of £15698 is the surrender value £10476 plus a compensation payment of £5222. Is the offer conditional on surrendering, or would they give you £5222 and let you keep the endowment going? If that were an option, would you consider taking it, or would you rather be rid of the endowment?
Ah, 3.74% is more like it! But I'm disappointed, because when you use an online repayment calculator, then to say "I have calculated" is a bit like the truth being putty in your hands. :-(
It's slightly labour intensive, and they can't be bothered, and are probably too thick to handle the arithmetic involved, hence the claim that "specialist software" is needed.
If you post them, I'll do the calculation for you.
My position is similar insofar as the dates are almost identical. My endowment matures in Sept 2012, but was taken out to repay a 50K mortgage.
Legal and General have offered me £21823.26. £18,176.30 as surrender and £3646.96 as "redress".
I dont know how FP works, but when questioned, L+G gave me a breakdown of how they came to this figure, so I guess FP would probably do the same if asked. Its probably in the FSA guidlines.
They basically took the repayment figures from Halifax over the period, and amortized it, showing what my mortgage balance would now be had I gone this route initially. This figure then comared to the surrender value, and the balance is the "redress".
In a sad moment, I actually download the b of e base rates over this period from the treasurey website, averaged it out over the same period, and used the amortisation calculator at
I came to a similar figure.
My dilema is what to do now ? As its almost "bonus season" so Im tempted to take the "redress" and keep the policy and surrender it next month, when, hopefully, the surrender value will be alittle higher. ???
I tried contacting a few endowment market companies, but no one is prepeared to offer greater than the L+G surrender value for my policy. Hmmmm. Maybe that fact alone tells me to take the money and run. :)
Anyone any thoughts on this ?

[snip]
What do you do with the rates and how ?
Clue: software can help.
[snip]
That'll be the day: an insurer offering more than the O would force it to
YES
I'm not that clever, I would not know where to begin to calculate the repayment method on a mortgage. I can just about manage interest only, but again I cheated & used an online calc to do that.
Brilliant; as follows:
period int rate no of months 28/08/1987 11.25 4 31/12/1987 10.25 1 01/01/1988 10.25 4 01/05/1988 9.75 3 01/08/1988 11.50 2 01/10/1988 12.75 3 01/01/1989 12.75 0 09/01/1989 13.50 6 01/07/1989 13.80 3 16/10/1989 14.50 3 01/01/1990 14.50 1 23/02/1990 15.40 9 05/11/1990 14.50 2 01/01/1991 14.50 3 08/04/1991 13.75 1 17/05/1991 12.95 2 01/07/1991 12.45 1 12/08/1991 11.95 2 14/10/1991 11.50 3 01/01/1992 11.50 2 27/03/1992 10.95 4 01/07/1992 10.70 6 01/01/1993 9.25 6 01/07/1993 Total Interest to this point is 25,015.42 (this figure is taken from statements; interest was calculated for the year and the same payments made monthly, the figure was then adjusted for the next year to take account of under/over payments due to interest rate changes.)
At this point we moved and increased the mortgage, the following are the rates applied: Fixed rate months 13/08/1993 7.77 57 31/05/1998
Fixed Rate 01/04/1998 6.20 65 18/09/2003
current rate 18/09/2003 3.74 3 31/12/2003
My total premiums to FP are 9,918 (their figure) this includes the life cover element, they calculate I have paid 52,415.15 in premiums and interest (I presume they have taken off MIRAS) over the term. They calculate a repayment mortgage would have cost me 53,392.77. I have all of this on a spreadsheet is it helps.
THANKS
With reference to the last post we were offered 11,000 redress and 2000 Compensation on a L+G 33,000 e.m.for 25 years taken out in Sept 1989. After much advice our independent Advisor told us to take the compensation and keep the policy. We did this-but only after a load of hassle from L+G who said the offer was only for surrender. The FSO did help me on this and after their intervention L+G changed their tune!
Have you considered hanging on to the endowment and taking a repayment mortgage? It's a gamble as is every other decision but you're presumably only eight years off the term of the endowment and it may pay off reasonably well even if not 35K.
I have two endowments taken out years ago, the first was definitely not a case of misselling it's done very nicely thank you and soon matures. The second is a complete disaster and was both mis-sold and IMO sold fraudulently. However after much umming and ahing and discussing it with a reputable IFA that I paid to review my investments I decided to hang onto both and changed to a repayment mortgage. Net results, term of mortgage reduced, payments reduced (huge reduction in total payments) and I now have two fairly reasonable looking investments to pay off in just a couple of years time.
Its in the FSA guidlines (AFAIK) to allow you to keep the endowment. The fact sheet even mentions that you might get a better price on the open market than the surrender value.
But back to my original question. Does anyone have any idea whether my L+G endowment's surrender or market value should improve or deteriorate after "bonus day" ??
Cheers, Danny
Of course it can help. But there's nothing fancy or "specialist" about it. Any half-decent programmer can throw something suitable together in under an hour. After all, it's merely a matter of automating something which can easily be done with a pad of paper and a pocket calculator.
First, you start with the amount borrowed, the term length, and the initial interest rate.
You have to make some assumptions, such as that interest is applied monthly, not annually, and you need to know whether interest is charged at a twelfth of the annual rate each month, or whether it varies depending on the number of days in the month, and how leap days are handled.
Second, you calculate the appropriate monthly repayment. You need to know how often this is re-done to account for rate changes, typically it would be annually, or it could be done monthly.
Third, each month until the rate changes, you simply "run" the account, i.e. charge interest at the prevailing rate on the sum outstanding at the beginning of the month, and if the rate changes mid-month, you'd split it on a number-of-days basis. Then you subtract the payment and that becomes your starting balance for the next month.
Then, depending on the re-calculation policy, you go back either to step 3 or step 2.

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