Doctor, it's my endowment ...
Sunday 25 April 1999
Many of us are hazy on what an endowment is - including plenty who are the less-than-proud owners of these policies. Simply, an endowment is a savings plan with a fixed timespan - usually 25 years, to match the term of a mortgage. If you keep paying until the end, you reach the pot of gold, known as the "terminal bonus". Then the endowment cheque pays off the capital outstanding on your home loan plus some extra money to set you up for retirement.
Except nothing works like that anymore. Interest rates are low and inflation is low. Both of these affect returns. And despite the fact that the stock market has been booming, this hasn't been reflected in annual bonuses - currently around 5 to 6 per cent. Many endowments were sold using projections of 10 per cent annual bonuses.
If you were a naive home buyer in the late Eighties and early Nineties, you probably have an endowment with 10 or 15 years to run. It's worth deciding on a plan in case the policy does not pay out enough cash to cover the mortgage. Someone in this position showed me a letter about her scheme. She needs pounds 70,000 to pay off the loan in 15 years' time. Ten per cent growth each year will yield pounds 150,000. But a more realistic 5 per cent means she'll get a payout of pounds 48,500.
She's already contacted her mortgage lender about swapping to a repayment mortgage. Another option is to save extra cash to meet any shortfall in a stock market based individual savings account (ISA).
You also have the right to be angry. One reader e-mailed: "Do the millions of us who took out endowment mortgages have no legal redress?" No one's sure. The Financial Services Authority is looking into the matter, and if it finds a mis-selling case to answer, there could be compensation.
Just don't bank on it being resolved before your final mortgage payment is due.
IoS exclusive: MI5 'tried to recruit' Woolwich attack suspect Michael Adebolajo
Fire and fury in Sweden as riots spread
EDL marches on Newcastle as attacks on Muslims increase tenfold in the wake of Woolwich machete attack which killed Drummer Lee Rigby
Fallen angel: Winona Ryder on bouncing back from her decade in the wilderness
Hurricane season fears as warning satellite fails
BMF is the UK’s biggest and best loved outdoor fitness classes
Find out what The Independent's resident travel expert has to say about one of the most beautiful small cities in the world
Nook is donating eReaders to volunteers at high-need schools and participating in exclusive events throughout the campaign.
Get the latest on The Evening Standard's campaign to get London's children reading.
Win anything from gadgets to five-star holidays on our competitions and offers page.