Resolve an endowment mortgage shortfall

Resolve an endowment mortgage shortfall

In the 1980s and 1990s, endowment policies were sold along with interest-only mortgages to provide a way for people to pay off their mortgage debt at the end. Some borrowers were left with an endowment shortfall due to these plans not working as they should.

There is help! This guide is for endowment mortgage holders with a projected endowment mortgage shortfall.

We’ll show you how to file a compensation claim, what workaround options and fallback options exist, and where to get independent mortgage advice about endowment mortgage problems.

Contact us today to speak with a financial adviser, all of our brokers are regulated by the financial conduct authority.

What is an endowment shortfall in relation to an interest-only mortgage?

An endowment mortgage deficit is what you might get if you are sold an endowment strategy as a repayment plan for an interest-only loan.

However, the policy is expected to perform poorly and will not leave you enough capital to repay your debt after the mortgage term. The difference between the payout of an endowment policy and the outstanding amount on your interest-only loan at the end is called the endowment shortfall.

These deals are known as “endowment mortgages” and were very common in the 1980s and 1990s. Endowment policies are now more common as standalone investment plans because some underlying investments failed and were mis-sold.

Your insurance provider should send a projection letter to let you know if an endowment program backs your interest-only mortgage. This will tell you if your investment is on track to pay enough to repay your mortgage debt. You should take immediate action if this is not the case. Find out what you can do if your endowment is insufficient.

Speak with a mortgage broker here to discuss your existing endowment policy.

If you do not have a job, what are your options?

You must act if you face a projected shortfall in your endowment policy, which was taken out to repay an interest-only mortgage. Failure to act could result in massive debt at the end of your mortgage term. If you are unable to repay it, you may have to sell.

We are here to help. We’ve listed some of the best fallback options and can arrange for a chat with a mortgage broker who is experienced in these situations. All of our brokers are registered with the financial conduct authority.

These are some options you might have if your endowment mortgage is insufficient.

Option 1 – Switch to a Repayment Mortgage – It may be possible to refinance an interest-only mortgage and switch to a repayment plan with either your current lender or a different one. You will likely pay more monthly repayments, but this could mean you are paying less overall for the whole mortgage.

Option 2 – Switch to a part and parcel mortgage – These hybrid mortgages are a mix of interest-only payments and repayment. Your monthly repayments help reduce some of your mortgage debt. This means you will have less to repay at the end than with an interest-only agreement. An underperforming endowment plan may be able to cover this.

Third option: Create another investment plan. If you have enough money to invest, you could consider buying another financial product to help you get rid of your mortgage debt. Talk to an independent financial advisor about investment IISAs, bonds, unit Trusts and other options.

Option 4 – Pay off capital using other investments – This could be equity from another property or a lump sum from a pension if you are approaching retirement age. To reduce the debt you have to pay at the end, you could cash in your endowment and pay off a portion of your mortgage. Before doing this, consult a professional financial advisor or mortgage broker.

Option 5: Remortgage to retirement-interest-only mortgage – Many providers offer interest-only mortgages as an alternative to equity release and equity release. These mortgages don’t have to be paid off until your death or long-term care. The proceeds would then be used to pay the mortgage. If you are considering this route, make sure you get the advice of a qualified financial advisor.

Last-resort options

You might have other options if none of the above options is feasible.

These include:

• Extension of your mortgage term: This will allow you more time to invest in the funds you need to pay your mortgage off at the end. As you will be paying more interest, this is not a decision to be taken lightly.
• Selling the property: Some people in extreme situations resort to downsizing and selling their property to make a difference. There are no guarantees that you will be able to raise the capital necessary to pay for the shortfall or find a better place to live.
• Equity release If you are over 55, you can take out an equity product such as a lifetime mortgage to allow you to withdraw tax-free capital from the home to make the difference. It is a serious decision that you should not make. In this instance, your inheritance would be affected. This is why it is essential to consult an expert before you make any decisions.

Do you have a right to compensation?

A shortfall in your endowment mortgage would be eligible for compensation, but only if the broker or financial advisor was poor. You may qualify for payment if they did not mention the possibility of a mortgage default at the end of your term or if you were told that the endowment policy would cover your mortgage debt.

If you are…

• Your advisor did not perform a complete financial risk assessment
• You weren’t fully informed about the fees.
• Your advisor advised you to cash in an existing endowment plan and sell another.
• Your broker did not check if you would have enough income to pay your endowment mortgage.

If the endowment policy performed poorly or did not generate sufficient funds to repay your debt, you won’t be able to make a claim.

How to file a claim for compensation

There will be a deadline for you to file your complaint. You will have to file your complaint within six years of the date the policy was purchased or three years after you realise you have grounds for complaining.

If you believe your claim will fall within either of these time frames, the following steps are necessary.

1. As much documentation as you can for your claim, any missing documentation can be requested from the company selling the policy.
2. Let the company that sold the policy know why you are claiming grounds for complaint. Thisismoney.co.uk has a template complaint letter.
3. Allow the company up to eight weeks for a response. This is the maximum time they are allowed to respond under the law. You might be offered compensation before that point.
4. You can escalate your matter by contacting the Financial Ombudsman Service. They will review your case independently. They will not review your case unless you have filed a complaint with the endowment mortgage provider and received the “final reply”.

Remember that your compensation will not necessarily cover the interest-only mortgage shortfall. Once you accept an offer, there is no further recourse for any other claims related to this endowment mortgage.

Are you having trouble paying your endowment mortgage? Get the right advice now!

Many options are available if you face a shortfall in your endowment mortgage. However, it is best to speak to an expert before making decisions.

Our broker-matching service is free, and we can help you find the right endowment mortgage advisor for your circumstances and needs. They will provide bespoke advice on how to solve your shortfall, and negotiate the best deal for you, whether you are looking to refinance or extend your mortgage term.

How a mortgage broker can help guide you in choosing the best option

A good mortgage broker can review your options and explain their pros and cons. They can also help you find the best solution for your endowment mortgage shortfall.

Our network includes several mortgage brokers that specialise in endowment mortgages. They have helped many customers find the right solution for their shortfalls, so they have the expertise and experience to get the best result.

No matter your background, our broker-matching service can help you find the right advisor for you. We can match you with a professional remortgage advisor if you consider refinancing. If equity release is something you consider, we can arrange for a no-obligation chat with an expert equity release specialist.

We can also arrange a consultation with an independent financial adviser if your endowment is not performing well.

For a no-obligation-free chat about your options, contact us today or submit an enquiry online .