An endowment mortgage shortfall is the term used to describe the problem you are faced with
when the yield from your endowment policy on maturity is insufficient to pay off the mortgage
at the end of its term.
The endowment mortgage shortfall refers
to the difference between the final amount
the endowment will pay out and the amount required to pay off the mortgage outstanding on your property.
For example, if the mortgage outstanding on your property is £40,000 and your endowment policy yields £30,000
on maturity, you have a endowment policy shortfall of £10,000.
THE FSA (Financial Services Authority) published their MONEYmadeclear series of guides
to give the facts about
financial products and services, helping you to make an informed decision.
The following is an extract from How to Make up a Mortgage Shortfall.
When your investment pays out at the end of the term, pay all the money into your mortgage to find out exactly
You may have several options:
* You could pay the shortfall from savings you have elsewhere
* You could discuss a new repayment period. The quickest way may be to carry on with your previous monthly payment,
* You could sell your property to repay the mortgage, and buy a cheaper property so you don't need a mortgage.
In general, provided you keep up the new agreed mortgage payments, you should not lose your home as a result of the shortfall.
EXAMPLE
Joe has come to the end of his mortgage term and is left owing his mortgage lender £8,000.
The interest rate on his mortgage is 5.95%. Joe could carry on with his current monthly payment
of £154.48.
Joe will retire in seven years, so has agreed with his lender that he will repay the £8,000 over seven years and his monthly
repayment will be £116.68, which will cost him £9,000 in total.
how much you owe the lender. Then talk to your lender as
soon as possible.
although you may be able to agree lower payments
over a longer time. You should avoid extending the term into your retirement
unless you're sure you can afford it.
This would repay the remaining capital and interest in five years, and would cost £9,268 in total, but this is more than
Joe wants to
pay every month.
Examples of other questions dealt with in the FSA Moneymadeclear Guide:
How to relax - Useful links to Moneyadviceservice.org
Dealing with your mortgage shortfall
How to make up your mortgage shortfall