Seeing red over loan shortfalls

0 Comments | Sunday Herald, The, May 19, 2002 | by Teresa Hunter

Over one year later and after numerous phone calls to the RSA, they have come back with their final outcome letter which states that in order to establish if I have lost out as a result of effecting this Flexible Mortgage Plan they made a comparison of this plan and a capital and interest repayment route and calculated that the RSA will make a payment of (pounds) 7562, which represents the additional compensation due over and above the surrender value of my plan of (pounds) 30,695. Also included is the declaration of acceptance note which must be signed and forwarded within one month to guarantee the surrender value quoted.

So, on my calculations they are offering me in total, after nearly 10 years of monthly payments of approximately (pounds) 300, a sum of (pounds) 38,258. This to me does not meet their initial written assurance quoted earlier that those affected will not be financially disadvantaged in any way.

My dilemma is should I accept their offer to surrender the policy, taking into account it has only another five years or so to run?

ANSWER: it would seem, on the sensible assumption of 6% annual growth, that you will be (pounds) 15,600 short on maturity. If you accept RBS's offer and switch to a repayment loan, you can at least be sure your mortgage will be paid off in 2007.

What the bank has done is to accept that you didn't understand the risk and compensated you in such a way that you have been put back in the position you would have been in if you had never opted for an endowment in the first place and simply taken out a straightforward repayment loan.

Accepting their offer will give you certainty. You will only do better if conditions improve more markedly than anyone expects them to. Holding on, therefore, will involve a big risk.