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Case 4: Consolidation

A married couple with two children were looking to fund the senior education of their son over the next seven years. A proportion of the fees were to be provided by a grandparent, leaving a balance of around £90,000 to be paid. The couple were paying for childcare at that time which was being phased out; redirecting this provision would reduce the sum required to approximately £32,000.

Although the couple had a manageable mortgage and a combined net income of £4700 (they were both state school teachers), they had not been managing their finances efficiently and therefore didn’t consider they had enough disposable income to fund the balance.

The capital for their mortgage of £120,000 was to be paid by endowments which were performing badly (surrender value of about £30,000). The couple also had credit card and car loans in excess of £22,000.

The clients needs were established as :

• Restructure finances to allow school fees to be affordable
• Create an emergency access fund for fees
• Arrange a suitable and comprehensive protection plan

The advice given was to cash in the endowment policies to pay off the loans and fund the first two years of school fees. A repayment mortgage would replace the endowment mortgage and alternative (cheaper) arrangements would be made to protect the mortgage and (additionally) the school fees. The monthly outgoings would be significantly reduced, enabling the savings to be invested to pay for the 5 remaining school years.

By restructuring the client’s financing, school fees could be funded and protected and the shortfall in their mortgage addressed without having to allocate any new funds! In fact the savings predicted would leave the couple £60 per month better off.