Money Q & A: How do I escape from the endowment trap?

In 1990 I took out a 20-year endowment policy to cover a pounds 38,000 mortgage. By 1995 I had married and my husband and I took out a 25-year endowment to cover a new pounds 60,000 mortgage. Everything we read advises against endowment mortgages and we certainly wish we had not taken out a second endowment mortgage. Should we stick with our endowment policies to the bitter end? Can we improve our situation? We are likely to need a larger property, but also expect our income to decline.

JB, Leicestershire

It is fair to say that much impartial opinion believes endowment mortgages are a bad thing. A Labour MP recently called for them to be banned, claiming that they have been mis-sold to many home buyers. The main argument against using endowment policies to pay off mortgages is that they can be expensive and inflexible. They represent a long-term commitment that only a minority of home owners keep. Home buyers who prefer to pay off a mortgage using an investment vehicle would do better to consider a tax-efficient ISA account. Those who want a mortgage covered by life insurance can get separate and relatively cheap "term" insurance with no investment element.

An even more serious problem has slowly been coming to light in recent years. Some endowment policy holders have been set monthly premiums that now look too low. Some insurance companies have advised policy holders to increase premiums mid-term if they want to ensure that the proceeds on maturity will be sufficient to pay off the outstanding mortgage. Unfortunately, it is one thing to counsel against taking out an endowment policy, but another to advise stopping an endowment mortgage once started. If you want peace of mind that your mortgage will be paid off by the due date, consider converting it to a repayment mortgage. If that is too expensive, you could at least consider starting to pay off some of the capital each month while you can afford it. The more you pay off, the less interest you will pay over the remaining term of the mortgage. But you must first check whether any capital repayments, even small ones, carry a penalty.

If you do switch to a repayment mortgage you should normally carry on paying the endowment policy premiums until the maturity date of the policy in order to get full value for all the premiums paid to date. Your endowment policy would then represent a savings plan to give you a lump sum pay- out at some date in the future to spend as you wish. However, if you have had an endowment policy for only a few years or so you could consider cutting your losses. You are unlikely to get much back for premiums paid to date and may get nothing at all. But you may prefer to spend the money saved on endowment premiums on converting to a repayment mortgage and, if you can afford it, into more tax-efficient savings vehicles such as an ISA or a pension plan.

It is not clear from your letter whether your second endowment policy mortgage is intended to cover the full pounds 60,000 of your mortgage or just pounds 22,000 - that is, the extra mortgage on top of your original loan of pounds 38,000. If the second policy covers the full pounds 60,000 you may have been mis-sold this policy since you needed a policy to cover only pounds 22,000. In this case, you should make a formal complaint and take it through the full complaints procedures.

You may decide to stick with your endowment mortgage to the bitter end. But if you do move in future and need a bigger mortgage, you can arrange to repay the first pounds 60,000 covered by endowment policies on an interest- only basis and the extra part of the mortgage on a capital repayment basis. You won't have to take a further endowment policy. Don't believe any lender or adviser who says otherwise.

Now he's 64

My father will be 65 next February and should be entitled to higher tax allowances. Will he still be entitled to the higher married couple's allowance or has the change in the last Budget permanently deprived him of this tax perk?

AM, Bedfordshire

Older people qualify for higher tax allowances in the tax year in which they reach their 65th birthday and even higher allowances in the tax year in which they reach 75. Higher age-related allowances are steadily withdrawn once your total income goes above a certain limit, pounds 16,800 at present.

Depending on your father's total income, he should already be receiving higher allowances for the whole of the tax year if his 65th birthday falls next February. (The 1999-2000 tax year runs from 6 April 1999 to 5 April 2000.) He can put in a claim now. Those coming up to their 65th birthday cannot assume that their tax office is aware of their date of birth.

Those whose 65th birthday falls in the 2000-1 tax year should inform their tax office in the next few months so that they pay the correct amount of tax from next April.

The change announced in this year's Budget withdraws the married couple's allowance from everyone born after 5 April 1935 from next April. But couples in which either husband or wife were born by this date will continue to be able to claim the married couple's allowance, including the higher age-related part of the allowance if the income of the husband does not exceed the total income limit.

Start your day with The Independent, sign up for daily news emails
Homeless Veterans charity auction: Cook with Angela Hartnett and Neil Borthwick at Merchants Tavern
charity appeal
Amir Khan is engaged in a broader battle than attempting to win a fight with Floyd Mayweather
boxing Exclusive: Amir Khan reveals plans to travel to Pakistan
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
Ched Evans in action for Sheffield United in 2012
footballRonnie Moore says 'he's served his time and the boy wants to play football'
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture