Interest-only --> switch to current a/c annuity ?

F

franksm

Registered User
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Hi folks

Currently about to start year four of a 30-year interest-only mortgage arranged by MoneyMatters in Tallaght. This is to the tune of EUR184,000 with IIB Homeloans on variable rate, paying EUR638 monthly into that. Also have an insurance/savings policy with Friend's First to cover the actual loan amount, which is EUR258 monthly.

Comparing the interest-only mortgage + savings versus a standard mortgage, seemed to net me a saving of EUR120 per month which at the time helped me afford the mortgage in the first place. MoneyMatters also reckoned an 8% return on the savings over the 30 years would at least cover the 184K if not exceed it.

However, I have always had a worry about such a mortgage.

Just this week, I have had a letter from FriendsFirst to say they have reviewed the savings and decide that there's going to be a shortfall unless I increase the monthly EUR258 to EUR358.

Should I switch to a current-account annuity type mortgage - and is that even possible to do with the interest-only mortgage ?

Cheers

Frank
 
I didn't realise anyone used endowment mortgages anymore, certainly following the misselling scandals. You may have even been missold this product and are entitled to some sort of compensation. "Professionals" on the board may know more.
 
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You have been sold an endowment mortgage. Is this what you asked for? An annuity mortgage is whereby the capital and interest reduces to €0 over the term of the mortgage - assuming you keep up the repayments. An endowment mortgage means that the original mortgage amount remains the same with the interest being paid on a monthly basis and the endowment policy pays off the capital at maturity *if* the policy grows sufficiently. An 8% growth rate is hugely misleading. Endowment policies are one of the highest paying commission policies which is why, sadly, they are still foisted onto unsuspecting borrowers. I would suggest you look closely at all the paperwork given to you at the time by MoneyMatters and pay close attention to the mandatory warnings that should have been issued by you by both IIB and Friends First.

Sarah

www.rea.ie
 
As an aside the current account /offset mortgages offered by First Active and NIB are good for some borrowers but I would suggest you concentrate on getting this mortgage sorted out first and as matter of urgency before you waste any more money.

Sarah

www.rea.ie
 
Thanks Sarah

Well, "interest-only" is what they called it, making reference to the old term "endowment" while saying that the interest-only mortgage is safer than the endowment and generally approved in Ireland.

Although they did say that it might be possible for the savings policy to not cover the mortgage amount, the 8% was deemed reasonable. It's only now that FriendsFirst say the goverment is stipulating that all vendors of such mortgages make a review of them once a year, and in doing so for the first time, they are seeing a shortfall already.
 
Hmmm, a shortfall which necessitates an increase in payments by 39% after only 4 years. 4 years which have seen the stockmarket return above historical average returns. Sounds like a mis-sold product to me. You need to talk to a solicitor.
 
Then they have deliberately mislead you, absolutely no question. Yes "pure" interest only mortgages are readily available in Ireland but mainly apply to investment properties whereby the mortgage will be repaid by the sale of the property. God, this makes my blood boil! If I were you I would be looking for 100% refund of all the premiums paid, including all charges and use this sum to reduce your mortgage balance and switch it to an annuity at the same time. Please get onto Friends First and MoneyMatters (and IFSRA if necessary) ASAP.

YOU HAVE BEEN RIPPED OFF.

Sarah

www.rea.ie
 
Cool - I'll do that - amazingly there isn't an awful lot of documentation provided for either the mortgage or the savings policy. I mean, I got more explanation/documentation when I took out a loan (years ago) to buy a car.

Anyway, will gather together what I have (incl. some "projections" which MM created to sell the mortgage options) and ask my solicitor about which way to go about it.

Cheers for the advice - have always had an indefinable ill-feeling about it but I guess I would have had that about most things money-related given what any first-time-buyer has to go through
 
Endowments are now quoted at a rate of 6% or even lower depending on the fund selection. It used to be 8% but this was about fews years ago to be honest I thought it was five years since it changed, time flies!! What is effectively means is that the fund needs to grow at the quoted % p.a. to provide sufficient at the end of the term to repay your mortgage. The fund/s selection is therefore very important. For example, if you were invested into cash you probably could not hope for more than 3% p.a. but if you were is say property, most of these have been producing an average of 15 to 18% over the past few years, many even more. The requote that they are doing is probably based on 6% growth so a higher premium would be deemed anyway.

As you said you were always worried about such a mortgage so it probably was not for you from the outset and a good advisor should have identified this.

I have an endowment mortgage effected two years ago, just got my statement and the accumulated fund is just over €12k. If I had gone down the annuity route I would have only repaid just under €8k so I am quids in at the moment, obviously I will keep an eye on my funds. They are not for everyone, particularly where you are not made aware how they work from the outset, and what fund the person is invested into, personally I would not have anything else however I know quite a bit about investment so I have a little bit of an advantage.

Presently €258 per month at 8% would give you aproximately €244k in 30 years based on savings only (no life cover) the same premium would give you €178k in 30 years based on 6%. This is only a general guide, the actual amount is dependant on the actual contract.
 
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