Endowment or annuity?

W

Welfarite

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Person aged 50, separated (not legally), with ten years to run on original family home mortgage. Wants to buy own house (one name only), ex-wife in family home. Due to retire in 10 years with gratuity of €75,000.

Question: if he were to get mortgage of 200,000, woul dit be better to take out an endowment mortgage with lower repayments now and pay off balance with gratuity in ten years or take out annuity mortgage over, say, 15 years? Can afford repayments up to 1000 p.m. until retirement.
 
Be careful about endowment mortgages given the unpredictability regarding whether or not the endowment savings/investments part of the mortgage will perform to expectation in order to clear the mortgage at the end of the term. I presume that you are familiar with this issue and the historical one of such products being missold on the basis of very optimistic projected returns which bore no relation to actual returns and often also included hefty charges/commissions? If not then search for previous threads and articles on the web about this issue to apprise yourself of the facts. Also bear in mind that an endowment mortgage is actually a bundle of two products - an interest only mortgage and an endowment savings/investment policy. Other options are possible such as an interest onlt mortgage alone or a pension mortgage (like and endowment mortgage except that it's a pension with tax advantages rather than a general endowment savings/investment policy that is linked). I suspect that this person really should get independent, professional advice on this issue since it is slightly unusual in my opinion.
 
Thee reason they're thinking endowment is to ease the payment situ. adn use gratuity if endowment fails to preform. The way it was put to me was "make the gratuity work for me now by buying a house to live in". They're paying rent of €500 a month at present. Think it's a financial adviser job really, eh?
 
Have they sounded out any lenders on this strategy? I just wonder if many would be amenable to that sort of arrangement. If €1K p.m. is the limit of affordability on monthly repayments then it looks like it could be a push to get €200K over 10 years on any basis. Others here (particularly those working in the industry) might be able to comment but it looks like one for independent advice to my untrained eye.
 
An endowment mortgage would not give lower repayments than an annuity mortgage - are you perhaps thinking of an interest only mortgage with the lump sum being repaid by way of the gratuity? On €200,000 the interest only payments would be gross €767 at 4.6%

Sarah

www.rea.ie
 
There are problems with endowment mortgages as previously mentioned but I think it would be best for this person to speak with a mortgage advisor who can go through the various options available on the market with him.

Jacqueline
 
Sarah W said:
An endowment mortgage would not give lower repayments than an annuity mortgage - are you perhaps thinking of an interest only mortgage with the lump sum being repaid by way of the gratuity? On €200,000 the interest only payments would be gross €767 at 4.6%
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I forgot to work out the interest only repayments so obviously €767 would be within budget here. Don't forget that he would also need level term mortgage protection life assurance (for a 50 year old) for the term of the mortgage but I'm not sure of the indicative costs and he would need some strategy for coming up with the additional €125K to clear the mortgage at the end of term and I'm not sure that c. €200 p.m. into an endowment policy or even a mortgage (if applicable) would be likely to generate that sort of figure?
 
Am I right that pension Mortgage only avaliable to self-employed and co. directors?

I think the problem with the longer term of repayment is that he won't/doesn't want to be working beyond 60.

Looks like the best option is interest-only but will his age restrict this?
 
Welfarite said:
Looks like the best option is interest-only but will his age restrict this?
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In the absence of any clear strategy to come up with the full €200K at the end of the term I would assume so.

You are probably right about pension mortgages and self-employed although I think that there can be exceptions even if that is the general rule.
 
hi, Time seems a bit short for OP to consider a pension mortgage. Would have to put in a lot of money over a finite number of year and then gamble on market returns to make up the €200k principal repayment when 65 (retirement)
 
If time is short for a pension mortgage (if even applicable) then time is presumably even shorter for a endowment mortgage since the former benefits from tax/PRSI relief that the latter does not.
 
The ONLY way the OP should consider an endowment mortgage is if there are existing endowments in place from previous mortgages with maturity values projected to meet the €200,000 at a growth rate of, say 3-4%. Otherwise an interest only mortgage with a view to selling the property at retirement is probably the best bet.

Sarah

www.rea.ie

Edited to add - mortgage protection/level term assurance can be waived under the Consumer Credit Act if you are over 50 and yes, Bank of Scotland would do a 15 year pure interest only mortgage assuming the application fitted their lending criteria.
 
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