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Endowment Policy on house
My partner has split from his ex wife and she is talking about cashing in the endowment they have on the house to get some needed cash!!
There is only 5 years left to run on it and the mortgage was paid years ago - does anyone know what percentage or average amount they could look to lose. She is going to check it all out first but she has been a little secretive of late with certain things so just checking a few things out for him.
There is only 5 years left to run on it and the mortgage was paid years ago - does anyone know what percentage or average amount they could look to lose. She is going to check it all out first but she has been a little secretive of late with certain things so just checking a few things out for him.
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Endowments on a house are normally a form of mortgage, whereby the mortgage payments are split, such that one part pays the interest of the capital sum of the house, and the remainder goes towards an investment, which should pay off the capital sum on maturity.
As an example � let�s say you buy a house for �100K on a 25 year endowment mortgage. At the end of the 25 years, you still owe �100K for the house, but your investment should have grown to at least �100K to pay off the mortgage. The reason they became so popular was that back in the 80�s, people�s endowment investment performed so well, that their investment returned over 50% more than predicted � netting someone with a 100K mortgage with a nice payout of over �50K. Then things went bad in the investment market, with investments not even covering the house price � leaving people with a mortgage short fall at the end of the mortgage period.
Most people with an endowment mortgage ending in the next 5 years or so, are very likely to see a mortgage short fall � what I don�t understand is how the mortgage was paid off years ago, when it should be paid off out of the endowment investment proceeds at maturity.
Are you sure that it is an endowment policy on the house?
As an example � let�s say you buy a house for �100K on a 25 year endowment mortgage. At the end of the 25 years, you still owe �100K for the house, but your investment should have grown to at least �100K to pay off the mortgage. The reason they became so popular was that back in the 80�s, people�s endowment investment performed so well, that their investment returned over 50% more than predicted � netting someone with a 100K mortgage with a nice payout of over �50K. Then things went bad in the investment market, with investments not even covering the house price � leaving people with a mortgage short fall at the end of the mortgage period.
Most people with an endowment mortgage ending in the next 5 years or so, are very likely to see a mortgage short fall � what I don�t understand is how the mortgage was paid off years ago, when it should be paid off out of the endowment investment proceeds at maturity.
Are you sure that it is an endowment policy on the house?
Yes its definitely an endowment policy - my partner and ex wife bought their first home for approx �50k 20 yrs ago --- he worked his ar5e off to get the mortgage paid early and its been paid for over 10 yrs that Im aware of.
She is wanting to get her hands on some cash so she suggested cashing the endowment in!! He is not the most financial minded person so will have to make sure he sees any paperwork if they go down this line but I was just wondering if anyone would know, roughly, what they could stand to lose if they stopped 5 yrs early - the house is work approx �250k now!!
She is wanting to get her hands on some cash so she suggested cashing the endowment in!! He is not the most financial minded person so will have to make sure he sees any paperwork if they go down this line but I was just wondering if anyone would know, roughly, what they could stand to lose if they stopped 5 yrs early - the house is work approx �250k now!!
Normally there is a hefty penalty for ending endowment type policies early (although I cannot give a numerical value for ending 5 years early).
Not that long ago, there used to be lots of adverts on the radio, by companies offering to take on this type of policy, rather than surrendering it back to the insurance company.
These companies would offer to pay you an amount for the policy (more than the insurance company) � they would then continue the policy to maturity, thereby avoiding the early redemption charge.
Perhaps others could supply the names of a few such organisations, or you could search the web.
Not that long ago, there used to be lots of adverts on the radio, by companies offering to take on this type of policy, rather than surrendering it back to the insurance company.
These companies would offer to pay you an amount for the policy (more than the insurance company) � they would then continue the policy to maturity, thereby avoiding the early redemption charge.
Perhaps others could supply the names of a few such organisations, or you could search the web.
Further to my earlier post, there is nothing to stop your partner from buying out his ex, and taking over the policy himself.
If this is a serious option � I would get professional advice on the likely loss due to surrendering the policy early, versus the gains of letting it go the full term.
There would be other important considerations in this, not least that his ex may not be happy that he would gain out of the deal � and would rather both loose out, rather than he gain. Also you would need to ensure that deal was water-tight, in that his partner cannot then try to claim she is owed her share from the final payout.
If this is a serious option � I would get professional advice on the likely loss due to surrendering the policy early, versus the gains of letting it go the full term.
There would be other important considerations in this, not least that his ex may not be happy that he would gain out of the deal � and would rather both loose out, rather than he gain. Also you would need to ensure that deal was water-tight, in that his partner cannot then try to claim she is owed her share from the final payout.
yeah Hymie is right
[however I have paid off my mortgage and still have the endowment, and yes I am still paying mine]
your partner should seriously think about buying out the half the ex partner wishes to sell.
the insurance co gives a surrender value which is crap (they apply something called an MVA whch may behigh as 30%}
give her half as she wont be able to get anything better
and keep the endowment
you get a rising asset and get to screw the ex wife
perfect. think about it at least.
PP
[however I have paid off my mortgage and still have the endowment, and yes I am still paying mine]
your partner should seriously think about buying out the half the ex partner wishes to sell.
the insurance co gives a surrender value which is crap (they apply something called an MVA whch may behigh as 30%}
give her half as she wont be able to get anything better
and keep the endowment
you get a rising asset and get to screw the ex wife
perfect. think about it at least.
PP
-- answer removed --
You could find yourself in the unusual position in that it would be worth borrowing money to invest.
Say that the policy is projected to pay out �40K in 5 years (at maturity), however if surrendered now, you might only get �20K.
You borrow �10K to buy out his ex, and borrow money to keep up the policy payments for 5 years. The Borrowed 10K at 10% APR (without paying anything back) will have grown to �16K over the 5 years. The on-going 5 years payments might add around another �5K or so to the total amount borrowed.
The net result for your partner would be that rather than getting �10K now, in 5 years he would get �40K � �16K � �5K = �19K.
You would need to do the above calculation with your actual numbers to see if it was worth considering. You could even present the numbers to your bank manager in order to obtain the necessary loans.
Say that the policy is projected to pay out �40K in 5 years (at maturity), however if surrendered now, you might only get �20K.
You borrow �10K to buy out his ex, and borrow money to keep up the policy payments for 5 years. The Borrowed 10K at 10% APR (without paying anything back) will have grown to �16K over the 5 years. The on-going 5 years payments might add around another �5K or so to the total amount borrowed.
The net result for your partner would be that rather than getting �10K now, in 5 years he would get �40K � �16K � �5K = �19K.
You would need to do the above calculation with your actual numbers to see if it was worth considering. You could even present the numbers to your bank manager in order to obtain the necessary loans.
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