Brendan Burgess
Founder
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Many people are getting letters from their life insurance companies that the with profits endowment policy they took out when they took out their mortgage is not going to be enough to pay off their mortgage. So how do they make up the shortfall?
Do not increase your premiums
The charging structure on these policies is such that most of the increase in the premium in the first year goes in charges. So this is the one thing which you should not do.
Don't panic
Typically, the projected maturity value is around €45,000 while the mortgage is €50,000. Given that the house is probably now worth, €500,000 there is no need to panic. The worst that can happen, is that on maturity, you will still owe the lender €5,000 or 1% of the value of the house.
You can increase your mortgage repayments
Your mortgage lender will tell you how much you need to increase your monthly repayments by to pay off the mortgage.
If you have rented out the property, you should not increase the repayments as you get tax relief on the mortgage interest so you should keep your mortgage balance as high as possible.
You can cash the policy now and switch to a repayment mortgage
This is usually not a good idea. While it's very difficult to project how these policies will perform, they are usually at maximum value if held to maturity.
If you do decide to cash your policy now, an endowment policy company may give you a better price than the life insurance company. There are three such marketmakers licensed by IFSRA
Irish Policy Exchange Company Ltd 066 711 7677
Endowment Policy Purchasing Co. Ltd. 1850 59 59 59
Endowment Exchanges Ltd 061 923 025
Do not increase your premiums
The charging structure on these policies is such that most of the increase in the premium in the first year goes in charges. So this is the one thing which you should not do.
Don't panic
Typically, the projected maturity value is around €45,000 while the mortgage is €50,000. Given that the house is probably now worth, €500,000 there is no need to panic. The worst that can happen, is that on maturity, you will still owe the lender €5,000 or 1% of the value of the house.
You can increase your mortgage repayments
Your mortgage lender will tell you how much you need to increase your monthly repayments by to pay off the mortgage.
If you have rented out the property, you should not increase the repayments as you get tax relief on the mortgage interest so you should keep your mortgage balance as high as possible.
You can cash the policy now and switch to a repayment mortgage
This is usually not a good idea. While it's very difficult to project how these policies will perform, they are usually at maximum value if held to maturity.
If you do decide to cash your policy now, an endowment policy company may give you a better price than the life insurance company. There are three such marketmakers licensed by IFSRA
Irish Policy Exchange Company Ltd 066 711 7677
Endowment Policy Purchasing Co. Ltd. 1850 59 59 59
Endowment Exchanges Ltd 061 923 025