Accountant / Mortgage advice

Hi,

I'm no expert, but am Hungarian :-)

But of course you should not share such documents with strangers on the Internet. At least here you have my posting history to go by...

Well, it should be simple enough for an accountant to work out, I just need some advice who to talk to.

I paid 25% deposit and have an "endowment insurance" mortgage but the final payment seems for the full purchase price not for the 75% loan.

I'm pretty thick when it comes to finance so I just wanted it checked before I talk to the bank.

The damn thing is in Swiss Francs of course.

sg2 wrote:

an "endowment insurance" mortgage but the final payment seems for the full purchase price not for the 75% loan.

That is how an endowment loan works: You pay interest only on the loan, and do not at all decrease the principle. Instead, your "payments" go into an investment fund that is suppose to provide a return that should, when the loan comes due, have enough to pay off the existing 75% principle all at once (and in "ideal" conditions even make more so you could also have a nice "profit" from the endowment). So, yes, you are still liable for that full remaining amount of 75%. That is paid from the income generated in the endowment. If you think the final payment is for 100% of the loan then something is amiss, and may be due to the current, and unfavorable, currency exchange rate if the loan is in Swiss Francs.

But (yes there is a "but"), one problem is, for over a decade, endowment loans have not been a good way to take a loan as the investment side has done very poorly. No reputable bank should offer one of these loans today. In fact, if you got a new loan just 5 years ago (rather than say acquiring the loan from the prior owner) I, for one, think you got very bad advise from your banker.

I did question it at the time but it was the only offer on the table.

Really worried about the 100% still to pay off the loan after paying 25% deposit which is why I want to talk to someone who can talk to my bank on my behalf.

klsallee wrote:

But (yes there is a "but"), one problem is, for over a decade, endowment loans have not been a good way to take a loan as the investment side has done very poorly. ...

You're not wrong about it being a poor investment.

I know of someone with an endowment policy (this is an insurance policy which provides life cover and an investment which supposedly repays a mortgage at term) and the past 7 years of monthly payments have been wiped out by the the poor economic conditions. In other words, the policy valuation is lower than it was 7 years ago.

With endowment mortgages lasting 25 years, when the policy is 15 years old and it's going nowhere, one faces the dilemma of carrying on (possibly throwing good money after bad), cashing it in (and losing any potential gain) or selling it on at a discount.

On the last point, I have heard there is a market in insurance policies within a few years of term where if you take over the payments, you can make a reasonable gain by the time the policy comes to term.

Hmm, in the "glory days" of Brokernet, (the MLM insurance salesman company), the cheerful, well-respected, but financially illiterate lead tuba-player in our village signed up, and sold such constructs to everyone he could convince.

He tried to explain it to us too, it was about taking out a swiss franc mortgage on all your real estate to the full amount possible, the part you don't need as a loan (or the whole if you don't need a loan at all) was to be invested in some Japanese Yen denominated investment fund, adding monthly payments to the fund, and only repaying the loan from the fund in the end.

I very politely explained to him I would not bet the change in my pocket at these odds :-)