Should I cash in this endowment with just 3 years left to run?

gillbill

Need a little bit of financial advice please. We currently have a Friends Prov Endowment policy ( Homebuyer plus plan - units with profits) and are paying in £90 a month.

There are just over 3 years left to go on this (and the morgage), but are unsure if we should let it run to term or just surrender it now, and use it to pay off the bulk of the mortgage (this will leave just about £8,591 outstanding on mortgage.,which we could pay off with savings). We have already taken care of most of the projected shortfall which is why it is only £8,000 short if we cash in the endowment now.

Todays cash in value of the endowment is £19,003, The end of term (Jan 2012), estimated mid projection is £25,900.

Currently we are paying £ 117.22 per month on a £27,591.88, interest only tracker morgage, which is currently at 5.1%, but this reverts to the standard variable rate in Mar 09.

Any advice to newbies would be appreciated!!

dimbo61

The mortgage rate of 5.1% is very good at the moment but what will you be paying come march 2009 ?
If you cash in the endowment and used your savings to clear the mortgage in march this will mean you are mortgage free over 2 years early and saving both mortgage and endowment payments !
If your savings are in ISA,s earning you more than 5.1% TAX free then using that money to clear the mortgage might not be the best thing to do.
The endowment is worth £19,003 today plus 39 months x £90 = £22500
and the ESTIMATED ! value is £25,900 thats £3400 extra.
But if you paid off the mortgage and invested the mortgage payment and endowment premium 39x 117.22+90 = £8,081.58 PLUS INTEREST guarenteed.
YOUR CALL GOOD LUCK

ad9898_3

The figures that dimbo quoted are correct, however do you get a final bonus on the endowment ??, i have 2 that are due in 2012 so I know its possible but obviously not gauranteed

Rabiddog_2

You need to find out if there is a Final Binus payable.. if so, then it may be worth keeping the Endowment

janken

A number of years ago we SOLD our endowment, we were advised to NEVER surrender....... speak to a financial adviser... We ended up with a lot more money in our pockets than the face value of the policy..:D

gillbill

dimbo61 wrote: »

The mortgage rate of 5.1% is very good at the moment but what will you be paying come march 2009 ?
If you cash in the endowment and used your savings to clear the mortgage in march this will mean you are mortgage free over 2 years early and saving both mortgage and endowment payments !
If your savings are in ISA,s earning you more than 5.1% TAX free then using that money to clear the mortgage might not be the best thing to do.
The endowment is worth £19,003 today plus 39 months x £90 = £22500
and the ESTIMATED ! value is £25,900 thats £3400 extra.
But if you paid off the mortgage and invested the mortgage payment and endowment premium 39x 117.22+90 = £8,081.58 PLUS INTEREST guarenteed.
YOUR CALL GOOD LUCK

Thanks for that. As far as we are aware, the estimated projected value was the value in total, not sure about any bonuses - will check on that, but big bonuses seem very unlikely in the forseeable future anyway!!

The interest on our mortgage will revert to the SVA which is 6.8% at the moment, and this will be above our savings rate (which are in ISAs) and it doesn't seem viable to pay an arrangement fee to switch the mortgage to another deal in March (such a small mortgage, so near the end will be difficult to move anyway I think?

To bin the endowment and invest the payments seems inviting, and is what we had thought - just needed some more views on this, as it's always easy to just see the good side - I suppose the bad side is it the endowment may just pick up in performance in the next three years - but then again pigs may fly I suppose!!

gillbill

janken wrote: »

A number of years ago we SOLD our endowment, we were advised to NEVER surrender....... speak to a financial adviser... We ended up with a lot more money in our pockets than the face value of the policy..:D

Thanks - it has just registered what you were saying about SELLING rather than SURRENDERING, but we don't really know how to go about this, so would need a IFA - will try and find one. Thanks.

gillbill

Have just found out that our endowment is a 100% unit linked!!! - not with profits as previously thought and there is no bonus at the end so no-one is interested in buying it at all. Have spoken to an IFA and decided to get out now, pay mortgage off and invest what we would have paid into the endowment and mortgage each month in an ISA. Call us chicken, but we haven't got the bottle to sit and hope the market recovers enough in the next three years to give us a reasonable return on this. The endowment has dropped another £50 odd since yesterday's redemption quote!!

Thanks to all for advice.

EdInvestor

gillbill wrote: »

The end of term (Jan 2012), estimated mid projection is £25,900.

If you cashed it in now and used the lump sum to reduce the mortgage, also increasing the mortgage payment by the amount of the endowment premium, at maturity your return would be 26,613, better than the provider's mid rate projection.

There is no risk premium left in this policy so it's not worth keeping if you don't need the life cover or can easily replace it.

gillbill

EdInvestor wrote: »

If you cashed it in now and used the lump sum to reduce the mortgage, also increasing the mortgage payment by the amount of the endowment premium, at maturity your return would be 26,613, better than the provider's mid rate projection.

There is no risk premium left in this policy so it's not worth keeping if you don't need the life cover or can easily replace it.

Thanks - our problem is that we get penalized for paying anything over £499 per month off the mortgage, so I'm not sure how much the penalty would be to pay off the lump while we are on our tracker mortgage. In March our mortgage rate will revert to the SVR - this is approx 1.7% more than we are paying at the moment, it will be more than we are getting on savings and the mortgage is just too small and nearing the end, so its not viable to pay the fee to go on a deal, and most aren't interested anyway.

Do you still think your suggestion is better than paying it off in full now (penalty to finish this early is now less than the total of the monthly mortgage payments until March), using savings for the shortfall after surrendering the policy, and then investing the mortgage/endowment payingment each month in an ISA?.

Life insurance would be missed as we are certainly not in a position to say it would be no problem financially if one of us popped our clogs, but this will expire with the endowment anyway and another policy for two 50+ smokers would be costly to say the least I think!

Sorry for the delay in replying - I have only just found out how to get email notification of replies!!

dimbo61

No dont get hit with any penalties
Cash in the endowment and pay into the best instant access account which is kaupthing edge 6.55% before TAX ( does the wife pay tax ? )
Over pay on the mortgage by the £499 a month and wait till march 31 2009 to clear your mortgage.
If you can pay any money into cash ISA,s do so ( look for 6/6.25% tax free )