cash in endownments to reduce mortgage or hold off

aardar

I have 2 endownments cash in value 10k i don't know whether to cash in and reduce mortgage or keep up. The original is from 1989-2014 and was low start with cash in value of approx 6k the other was flex mort plan currently running for 7 years and company has offered 5k as settlement deal as was missold. I don't know whether to cash in one/both and cut the losses in further mortgage has 9 years to run. Please help!!!!!

dunstonh

Specific advice cannot be given here. Discussion and opinions can be though.

Low start endowments are usually pretty awful. You pay more in over the term of the endowment than a level one and often the charges are higher too meaning you get back less.

You need to find out if the plan is with profits or unit linked. You also need to ask for a current value and a surrender value. Look at the difference between these two figures and that is what its going to cost you to surrender it. Sometimes the difference is too big to make it advisable to surrender. Other times there is no difference so you can exit without penalty.

You should be aware that these plans were usually front loaded with charges so the majority of the return is done later into the contract and not at the start.

What is the shortfall, if any, projected to be?

aardar

The current value is approx 11500k and the surrender value is 6300k and the shortfall is about 7k Any advice

dunstonh

So you have a 5k penalty if you surrender. You shorfall then would be nearly double.

Options to investigate:

1 - can you make the plan paid up without penalty? - this would mean you keep the plan until maturity but dont pay anything else into it but and dont face that surrender penalty
2 - If you can do the above, you can redirect an amount into an ISA to continue building up a lump sum plus cover the shortfall. Remember your life cover would cease if you stop the endowment. So you would need to replace that first. This still has risk but you could set the premiums to assume a low growth rate.
3 - if you want to reduce your risk, you could make paid up and then convert to repayment mortgage and keep the paid up endowment as an investment or keep part of the mortage interest only to the amount of the paid up endowment (you could include future returns but that depends on your attitude to risk and the company supplying the endowment and the fund it is in).

Whatever you do, you need to address that potential shortfall and depending on the endowment, fund and company, you may need to consider addressing a potentially larger shortfall.

aardar

TO DD

Thanks for the advice decided to hold on to the policy and convert the rest to repayment!!!!