"Endowment Mortgages"

[geoffw]

An Endowment Mortgage was something I entered into in England in 1988- before I knew better.

Basically, it was a 25 year IO mortgage- with an additional "mutual fund" type of add on.

They guaranteed that the amount you contributed over and above the IO component of the mortgage would, after being invested and compounded after 25 years, pay off the principal of the house.

When I bought the house in England, I was naive and knew no better.

I since changed the loan to P&I, and made the endowment portion "paid up"- which left the original amount invested, but left me with no obligation to pay more.

I learnt this week that this sort of mortgage has become a disaster area in England.

The stock market did not live up to even the pessimists' worst expectations. Now many of the providers who "guaranteed" a return are out of business.

So it's probably not a bad thing that this sort of product was offered to Oz.

 

[investorgirl]

Hi Geoffw, my parents in the UK still have an endowment mortgage (despite my efforts to try and get them to change it). In five years time, when they are both 70, it looks like they will not have enough return to pay off their mortgage. I believe it was possible to sue the insurance company who sold you the loan, on the basis that they failed to tell people that this sort of thing might happen. Again, my Dad won't do this. For the hassle it would take me to get him to sue, it is probably going to be better for me to pay out the shortfall on their mortgage at the end of the term (if it comes to that). Do you know if endowments have been banned now? investorgirl

 

[Aceyducey]

Shocking stuff - but I think it's one of those financial products that sounded good at the time.....

It's horrendous to think how many people may be affected by this situation. However, in one sense it's also sad that companies who offerred this product under one set of financial rules can now be held accountable for not warning people under a new set of financial rules.

What incentive is there for companies to try to develop new financial products, which really need as much trialing as medical drugs to understand all their potential side effects, if something they develop today they can be sued for in 20 years time when government legislation has changed, the global economic environment has taken off in an unforseeable direction & people are hurting.......

Less financial innovation....a good thing?

Cheers,

Aceyducey

 

[geoffw]

Do you know if endowments have been banned now? investorgirl

I don't know if they have been banned. I would not be surprised if there is enough negative publicity not to make them attractive any more.

There were other "innovative" products offered then- but I don't remember details now.

 

[Ecogirl]

yes i know this is in poor taste but i couldn't help it...

does that mean that the ppl that took up these mortgages aren't well endowed???



Ecogirl says with a pls forgive me grin on her face

 

[Qld's007]

geoff

Endowment mortgages are still very popular in the UK especially as many lenders have affiliations or are owned by Life Companies. Halifax owns Standard Life and Bank of Ireland owns Bristol & West etc.

I guess it boils down to the high paying commissions that Endowment policies offer and the sort of commission only salesman it attracts.

 

[XBenX]

/me looks up from his conversion to endowment calc...

Definately not banned...