Sunday, March 11, 2007

Endowment mortgages

I’d never heard of endowment mortgages until yesterday. Yet another approach to dealing with the endless trickiness of cash!
Seemingly, the borrower (that’s usually someone like me) does two things when he takes out a mortgage. He engages to pay the interest only to the bank or mortgagor, and pays what would normally be the money coming off the principle to an endowment insurer. It’s something in the nature of a life insurance.
The endowment insurer invests the money and the hope is, that by the time the mortgage is finally due, there will be plenty to pay off the mortgage, and a small sum on top as an ‘endowment’ – that is, you’ll have actually made some money out of having a mortgage instead of paying virtually twice what you originally borrowed.
Apparently these were very popular in the 80s, when there was a good rate of return on the endowment side of the equation. When interest on investments went down somewhat, they weren’t always as successful an item as they had been, as the insurers weren’t paying out the expected rate of return.
Endowment Express is a kind of brokering firm for those who want to sell their endowment policies to get the best rate. (As I understand it, some insurers are giving ridiculously low returns on those who want to buy out of the endowment.) They say that those who want to sell their endowment policies will have had a surrender-value quote from the life company. Usually a rather low amount quote, it seems, which must be a disappointment after years of what was supposedly a saving process. Endowment Express says they could give the borrower up to 35% more. They do this by using their expertise to ensure the endowment policy gets valued by every possible purchaser, including specialist buyers.
The question is, perhaps, why would you want to pull out of your endowment policy? There are a number of possible reasons: redundancy, paying off debts, divorce and the complications of splitting the assets, repaying the mortgage or moving house, or the payments are just too high.
When we were property owners (that is, property other than the house we’re living in), it was quite common for borrowers in that particular market to borrow on an interest only basis; not paying anything off the principle. The idea behind this was that when you did the house up and sold it, you’d get your principle back and wouldn’t have had to deal with it in the borrowing process. It made sense, as long as you were able to make money on selling the house! Being us, we didn’t
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