House Doctor: 'Our endowment will fall short. How can we pay for the house?'

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The Independent Online

Question: We've got an endowment mortgage set to fall well short of the £80,000 it was supposed to provide.

After receiving a letter from Resolution it says our "with-profits" policy isn't going to be anywhere near what we need – about £16,000 to £20,000 short – to pay off the house sale in 10 years' time.

Is there anything we can do; what options do we have? Help!

Janice Hurst, Carmarthenshire

Answer: Endowment mortgages are a reminder of how a good idea can go badly wrong in the wrong hands.

Flogged as a handsome way to buy a house, the idea was simple: take out a cheap, interest-only mortgage and invest a monthly sum into a tax-efficient endowment policy – usually a "with-profits" plan – placing your cash into the stock market.

The interest-only loan would come to an end usually 10 or 25 years later and your endowment would pay off the capital value of your house – and leave you a bonus on top.

Unfortunately, it didn't pan out like this for most. Commission-hungry mortgage sales staff often failed to point out that stock-market returns might not be enough to provide enough cash for the endowment. It's left hundreds of thousands of customers like you in a predicament today – what on earth to do faced with the prospect of a financial shortfall when your mortgage runs out?

David Hollingworth at mortgage broker London & Country, says you've time to act. He recommends you use the 10 years left to either find at least £16,000 to make up the shortfall, or "switch all – or part – of your interest-only mortgage into a standard repayment home loan and pay it off this way.

If you stop paying into your endowment, you face three choices.

The first is to let it simply sit there until maturity in 2021 while you try to make up the £16,000 elsewhere.

Your second option is to surrender it with Resolution for a cash sum and use this to help pay down the outstanding sum on your newly switched repayment mortgage.

Lastly, you could trade it on sites such as www.endowmenttrade.co.uk which could offer more than Resolution from a buyer on the open market.

You've other alternatives too: if you've spare savings, says a spokesman for financial advice website www.unbiased.co.uk, "you can use a spare lump sum to pay off part of the mortgage or overpay your mortgage each month".

housedoctor@independent.co.uk

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