Many people were aghast to find that the nearly too-good-to-be-true endowment mortgage was, well, exactly that.
As the time neared for them to reap the gains they'd been promised, they saw that the policies they'd purchased simply wouldn't be enough to cover their intended purpose, which was usually to pay for their mortgage.
The reason for this wasn't merely the economic times, but that many -- most -- companies had promised returns that they couldn't justify, in order to get them to buy the endowment policy.
The magnitude of the problem, particularly in the UK, is highlighted by the fact that, to date, UK banks and insurance companies have had to pay back consumers over 2 billion pounds in restitution...
As with many bonds from the securities industry over the years, fraud isn't realized for quite a few years, if the purchasers are lucky.
Mis-selling of endowments was a cancer that only burgeoned a decade or more after their initial offering, as many bright-eyed and confident investors realized that the endowment policies they'd bought to cover the cost of their mortgages were going to fall far short of the advertised returns.
Sadly, endowment policies have received a bad rap because of the advisors who mis-sold buyers, when endowments are actually a potentially very good investment vehicle - when used correctly and without ill-intent -- that are akin to mutual funds.
What Is An Endowment Mortgage? The so-called endowment mortgage was originally intended to function as such: the purchaser, upon obtaining a policy, would only have to pay interest on their mortgage, and pay the premiums on an endowment policy that would ultimately -- upon maturity -- pay the principal amount, also known as the capital.
Thus, if you had a $250,000 interest-only mortgage with a 15-year term, at a rate of 5%, you would pay around $600 monthly + the cost of the policy (which was small comparatively).
Roughly, then, you would pay slightly more than half monthly of what you should be paying without an endowment mortgage, and obtain money in addition to a paid mortgage by the time of maturity.
Overall, you were supposed to come out on top; significantly on top, in fact.
How is it that you could seemingly get "something-for-nothing"? The only plausible way, as you might have guessed, has something to do with the stock market.
An endowment is really just an investment portfolio of various securities and bonds, which of course, generally boast returns greater than any other form of relatively secure investment (consider the S&P 500, for example).
Unfortunately, for some reason or other -- likely small instances of fraud that ultimately added up, such as extra bonuses to executives or advisers, etc - the performance of the endowment policies didn't match up to the promise and expectation.
That the financial services sector is culpable is without question, no matter the speculation as to the exact reason.
Picking Up the Pieces The only thing left for literally millions of people who were/are victims of endowment mis-selling, and discovered that their policy would most certainly not cover their impending mortgage, is to file a complaint.
Unfortunately -- but necessarily -- there is a time limit for such complaints, after which they won't be honored.
Nonetheless, as there are thousands of pounds (tens-of-thousands, on average) involved, it is always worth pursuing an endowment mis-selling claim even if you believe the time for filing a complaint is passed.
Visit the FSA for more information, and be sure to avoid paying anyone to file the claim for you; no matter what they promise, they cannot get it to you faster than if you did it yourself; nor, could they get you more money.
As the time neared for them to reap the gains they'd been promised, they saw that the policies they'd purchased simply wouldn't be enough to cover their intended purpose, which was usually to pay for their mortgage.
The reason for this wasn't merely the economic times, but that many -- most -- companies had promised returns that they couldn't justify, in order to get them to buy the endowment policy.
The magnitude of the problem, particularly in the UK, is highlighted by the fact that, to date, UK banks and insurance companies have had to pay back consumers over 2 billion pounds in restitution...
As with many bonds from the securities industry over the years, fraud isn't realized for quite a few years, if the purchasers are lucky.
Mis-selling of endowments was a cancer that only burgeoned a decade or more after their initial offering, as many bright-eyed and confident investors realized that the endowment policies they'd bought to cover the cost of their mortgages were going to fall far short of the advertised returns.
Sadly, endowment policies have received a bad rap because of the advisors who mis-sold buyers, when endowments are actually a potentially very good investment vehicle - when used correctly and without ill-intent -- that are akin to mutual funds.
What Is An Endowment Mortgage? The so-called endowment mortgage was originally intended to function as such: the purchaser, upon obtaining a policy, would only have to pay interest on their mortgage, and pay the premiums on an endowment policy that would ultimately -- upon maturity -- pay the principal amount, also known as the capital.
Thus, if you had a $250,000 interest-only mortgage with a 15-year term, at a rate of 5%, you would pay around $600 monthly + the cost of the policy (which was small comparatively).
Roughly, then, you would pay slightly more than half monthly of what you should be paying without an endowment mortgage, and obtain money in addition to a paid mortgage by the time of maturity.
Overall, you were supposed to come out on top; significantly on top, in fact.
How is it that you could seemingly get "something-for-nothing"? The only plausible way, as you might have guessed, has something to do with the stock market.
An endowment is really just an investment portfolio of various securities and bonds, which of course, generally boast returns greater than any other form of relatively secure investment (consider the S&P 500, for example).
Unfortunately, for some reason or other -- likely small instances of fraud that ultimately added up, such as extra bonuses to executives or advisers, etc - the performance of the endowment policies didn't match up to the promise and expectation.
That the financial services sector is culpable is without question, no matter the speculation as to the exact reason.
Picking Up the Pieces The only thing left for literally millions of people who were/are victims of endowment mis-selling, and discovered that their policy would most certainly not cover their impending mortgage, is to file a complaint.
Unfortunately -- but necessarily -- there is a time limit for such complaints, after which they won't be honored.
Nonetheless, as there are thousands of pounds (tens-of-thousands, on average) involved, it is always worth pursuing an endowment mis-selling claim even if you believe the time for filing a complaint is passed.
Visit the FSA for more information, and be sure to avoid paying anyone to file the claim for you; no matter what they promise, they cannot get it to you faster than if you did it yourself; nor, could they get you more money.
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