Endowment Mortgage Shortfall

Endowment Mortgage Shortfall

Endowment Mortgage Shortfall - Your Options
What to do if your endowment policy fails to yield enough to pay off your mortgage

Endowment Mortgage Shortfall
Endowment Mortgage Shortfall
False Hopes and Broken Promises

Endowment Mortgage Shortfall

What is an endowment mortgage shortfall?

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.

"What can I do if the mortgage term is ending, and I can't avoid a shortfall?"

When your investment pays out at the end of the term, pay all the money into your mortgage to find out exactly
how much you owe the lender. Then talk to your lender as soon as possible.

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,
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.

* 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.
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.

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.

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Examples of other questions dealt with in the FSA Moneymadeclear Guide:

I'm about to retire and my payment plan isn't going to be enough to pay off my mortgage. What can I do?
I want to complain about my mortgage endowment policy. What should I do?

Mortgage Shortfall - Useful links to Moneyadviceservice.org
Dealing with your mortgage shortfall
How to make up your mortgage shortfall

Mortgage Calculators

DISCLAIMER
Remember, the extract on this page and the information contained in the FSA guides mentioned above
is general information and isn't the same as getting financial or other professional advice.
For advice based on your own circumstances, talk to a professional adviser.

How to relax - Useful links to Moneyadviceservice.org
Dealing with your mortgage shortfall
How to make up your mortgage shortfall

Mortgage Calculators

DISCLAIMER
Remember, the extract on this page and the information contained in the FSA guides mentioned above
is general information and isn't the same as getting financial or other professional advice.
For advice based on your own circumstances, talk to a professional adviser.