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Your Endowment Mortgage Explained
Endowment Mortgages have had bad press and it's mostly because of the enormous charges levied on the investments and from the risks and benefits not being properly explained at the outset.
You can't really do anything about the first point except perhaps sell your endowment to someone other than the original insurance company, but if you think your endowment was badly sold to you in the first place you can get substantial payments in recompense. It's a bit of work but the compensation could more than cover your losses.
By way of example of how an endowment mortgage works, you choose to mortgage your new property. You borrow money from your mortgage lender and ask to pay it back over 20 years.
They then arrange for you to pay back just the interest on that money (interest portion), and not the actual amount borrowed (principal or capital). As for the paying back of the capital, they suggest that you invest regularly/monthly into the stock market or bond market such that your investment will grow over the next 20 years enough to pay off the principal. They also introduce a range of funds from an investment company that is set up for this very purpose. They may also build in an insurance premium into the bill. They could also offer a bonus at the end of the term of the endowment depending on how stock markets have performed during the period and depending on what sort of endowment you have undertaken.
At the end of the mortgage period the interest will have been paid off from your monthly payments to the bank, and the capital can be paid off by cashing in the endowment back to the investment company which should more than cover the principal you initially borrowed.
Mis-sold endowment policies
What many lenders failed to state clearly enough when they started selling these endowment mortgages, was the amount of risk you were taking in the stock or bond market over the 20 years.
- What if the stock or bond markets fell and the investment didn't cover the principal?
- What if you chose to change providers?
- What if you sold your property early?
- What if you missed payments?
A few years ago, the stock market wasn't doing as well as it is now and some people had come to the end of the 20 year period but their endowments had not grown enough to cover the principal. This meant that they had to continue paying for months or years afterward or come up with other funds in order to pay the deficit. This situation may rear its ugly head again if stock markets keep falling.
Until recently, it has slightly less of a headline problem because the stock markets have been reasonably high. Although still, some of the investments that the funds invested in still hadn't done so well. Investments maturing soon may again not cover the price of the capital values of the property they were meant to cover.
Windfall Payments
If you have extra money that you wish to pay into your mortgage to reduce the amount, it is wise to ask an adviser which is the best way to reduce your overall mortgage. And what you are contractually allowed and not allowed to do.
- Repay a part of the outstanding interest
- Repay into the endowment fund
- Repay a part of the capital
Repaying part of the capital early and thereby have subsequently less interest to pay would probably be in most borrower's best interest, but it is unlikely in a typical endowment contract that the borrower would be contractually able to do this.
Trading in your endowment mortgage
If you sold your property early or otherwise want to trade in your endowment before its natural expiry date, the first choice (often mistakenly) is to trade it back in with the provider with whom you took out the endowment.
It is often a mistake chiefly because the prices offered by these fund managers is frequently quite a distance below the endowment fund's true value.
There are several companies who have seen this as an opportunity to make money for themselves by offering you, the endowment holder, a much better price for your fund whilst still it being worthwhile for themselves.
It is a legal and in many ways beneficial process that is tightly regulated by the Financial Services Authority, however, as always, in order for you to get the best deal, it is worth approaching more than one company for a price. Negotiation is almost always necessary.
Endowment Mortgage Trading Companies
Some Endowment Mortgage companies are listed here:
- Absolute Assigned Policies (UK) Ltd - Provides advice on selling a traded endowment policy and buying second hand policies.
- Brunel Franklin - Endowment compensation specialists based in the UK. Offers policy valuation services and the facility to file for a compensation claim on miss sold policies.
- Bucklands Independent Financial Advisers - Quotation provision for surrender.
- Burlington Partners - Specialises in endowment compensation claims for a mis-sold policy.
- CPH Financial Advisory Services - This helps to make you aware of the problems surrounding the mis-selling of endowment policies linked to the repayment of your mortgage.
- Endowment Advice Limited - Assistance for consumers who were mis-sold endowment policies.
- Endowment Claims - Information on endowment mis-selling with details of the process to follow to make a claim.
- Endowment Claims - Specialist compensation firm for victims of the endowment mortgage mis-selling scandal.
- Endowment Claimsline - Endowment Claimsline offers services for claiming on miss sold policies.
- The Endowment Market Place - Allows sellers and buyers of endowment policies to trade.
- Endowment Policy First - Offers policy sales services to a broad panel of buyers.
- Endowment Support Ltd - Providing service to help customers claim compensation on endowment mortgage shortfall and mis-sold endowment mortgage policies.
- Endowments Surrender Plus - Traders in the with-profit endowment or whole life policy market. Ability to bid or sell.
- EndowmentTrade - Seeks bids from investor firms and for buyers offer endowment sales lists.
- Foster and Cranfield - Auctioneers offering free policy valuations.
- Freedom from Endowments - Freedom From Endowments offers information and advice regarding endowment policy sales as well as a platform for policy selling.
- investep.com - Offers information on traded endowment policies, free policy-valuation and portfolio-management services.
- PolicyPlus - Includes a jargon buster, application forms and is a member of the Association of Policy Market Makers.
- Sell Your Endowment Policy - Submit your policy for sale and receive offers.
- Selling my endowment - Offers a platform for endowment policy sales.
- Solar Financial Services - Detailed telephone advice on endowment compensation payments with no charge
- 1st 4 TEPs - Broker of discounted traded endowment policies. Quotation and valuation service.
- 1st Policy Company Ltd - Services include selling traded endowment policies and buying endowment policies
- TEP Bank - Market-maker purchasing endowment policies from individuals or Financial Advisers on behalf of their clients.
- TEP Exchange - Facilitates the traded endowment policy marketplace by bringing IFAs and market makers together.
- Teps Ltd - Brokerage. Includes product information, tables and advice.
- Trade with-profit endowment policies - A trading platform for trading endowment policies via the traded endowment policy market
- Traded-endowments-uk.co.uk - Policy evaluation and submission.
- UK Endowments - UK based traded endowment policy consultants, enabling customers to buy, sell or auction endowment policies.