What are the three main factors in deciding which repayment vehicle to use for interest only?
- age
- ATR and view of future performance
- available income + borrowing requirements
What is a Without profit endowment?
This type of policy provides guarantees that the mortgage will be paid off if the policyholder (no investment element):
- dies during the mortgage term; or
- survives for the full mortgage term.
What is a Full With Profits endowment?
Provides
* a capital repayment vehicle;
* life insurance for the term of the mortgage loan; and
* the prospect of a tax-free lump sum on maturity.
* basic sum assured = value of mortgage
What is a Low Cost With Profits endowment?
Same as full with profits but sum assured = % of value of mortgage
What is in the ABI’s code of practice (endowment reviews)?
- initial reviews should be no later than the earlier of half the policy term, ten years from inception or maturity;
- subsequent reviews at min every five years;
- reviews in the last five years should be annual if there is any mortgage shortfall risk;
- policy review assumptions must be provided on either two projections at rates current at the time or a reasonable rate; and
- the current surrender value should be value to which project rates are applied.
Review letter options if endowment shortfall?
- Increase monthly premiums.
- Extend the term of the mortgage and the endowment plan.
- Repay some of the mortgage with a lump sum.
- Change part of the loan to capital repayment.
- Wait and see
What are retirement interest-only mortgages?
- Help with shortfall on interest only
- Enable borrower to fund shortfall with mortgage repaid on death, LTC or selling property
- Regulated as standard mortgages under MCOB rules
What are the rules of stakeholder pension plans?
- Max charge 1-1.5%
- Min contribution £20
