Review of endowment now due

 

IN the first quarter of this year, 511 endowment mortgages were sold. In the first quarter of 1992, 16,560 endowments loans were sold. In the intervening years fewer and fewer people opted to buy this investment-related product, choosing the traditional annuity mortgage instead in which both interest and capital is paid off on a monthly basis.

Now that five years have passed, it would be opportune for anyone who took out an endowment in 1992 (or before if they have not already done so) to review their contract. What you are looking out for is, relative to the amount of the loan, the annual net yield from the investment fund; the size of any bonuses paid already; the level of bonus payment being made by the insurer - are they stable or coming down each year, and the current surrender value of the policy.

Since endowment mortgages of this period incurred high costs and charges with up to the first two years premiums absorbed, you should ask the company to project your net (i.e. after all charges) endowment fund value at different investment rates of return - say 5, 7, and 9 per cent. A number of fee-based, independent mortgage and investment advisers will undertake a mortgage review for amounts ranging from £10 to £90. The purpose of such a review is to establish whether you need to increase the size of your monthly premiums to ensure that the mortgage loan is paid off in 15 or 20 years time. Low cost endowments - that is, low monthly premiums - were very popular from the mid-1980s onwards. Unit linked contracts, as opposed to with-profit ones, do not carry any initial guaranteed sums assured (i.e. an amount the company guarantees to pay you at maturity), nor do they level out the ups and downs of the stockmarket with annual bonus payments and they should be examined even more diligently.

If you are considering buying an endowment mortgage, or one has been recommended by a lender (or possible a commission-based mortgage broker), make sure to get impartial, independent advice before signing the contract. Ask about the level of charges that will be deducted from your initial premium contributions (these will include commission to the broker or lender plus insurance company set-up charges.) It is very important to seek independent advice about the life assurance fund management performance record and their prospects for the future. It is also vital that you fully understand the way the product works (whether it is a with-profit or a unit-linked contract) and the implications of paying interest only on the loan during a low-interest, low-inflation environment.