Endowment shortfall choices?

rosegirl36

I have a £67000 mortgage, which is part repayment and part endowment, the £45000 endowment is with Scottish Widows, however they are predicting a shortfall of £18000 at 4% growth £13000 at 6% growth and £6000 at 8% growth.The policy is index linked, not with profits, i pay a premium of £67 a month and there is 10 years and 10 months to go on the policy.I have exhausted the misselling route.The current policy value is £9362
Can anyone advise me on the best option to deal with the shortfall?

Many Thanks

rosegirl36

oh and my mortgage rate is 3%

dunstonh

The policy is index linked

I doubt it. That would breach tax rules. I think you mean its unit linked.

Can anyone advise me on the best option to deal with the shortfall?

Switch about £13,000 of your mortgage to repayment basis.

rosegirl36

Sorry i meant to say unit linked,by the way how much extra would i have to pay to convert £13000 of the mortgage to repayment?

dunstonh

It varies with the banks from nothing to around £150.

rosegirl36

dunstonh wrote: »

It varies with the banks from nothing to around £150.

Sorry for my ignorance,but how can a bank charge nothing to convert endowment to repayment?Am i best just asking my own Mortgage company Intelligent Finance?

Trying_to_be_good

They may charge nothing to make the change on their system - obviously if you convert to repayment your monthly payments go up (by a lot if the remaining term is short).

Many lenders don't charge an admin fee if the reason for the change is an under-performing endowment. Some, as dunstonh says, make a charge.

dunstonh

Sorry for my ignorance,but how can a bank charge nothing to convert endowment to repayment?Am i best just asking my own Mortgage company Intelligent Finance?

I was reading your question as to how much the fee was to convert from interest only to repayment for some or all of the mortgage. Some wont charge a fee but some will.

If you mean how much will it change your monthly payments, then they will go up. Probably around £60pm on £13k. However, only the lender can tell you.

rosegirl36

Thanks for your reply, yes i meant how much the monthly fee would increase by.Can i ask how you arrive at that £60 figure, that is not as bad as i thought it would be?

Trying_to_be_good

You aren't paying a monthly fee, you're paying a monthly repayment - that's where the confusion has crept in.

The extra amount you pay is down to a formula - I make it £85 per month with a term remaining of 130 months (10 years 10 months), rising to £93 if you wait until there's just 10 years. Best way to check is to call them.

Rule of thumb - it will always be less that the total amount divided by the number of payments still to make (e.g. £13,000 divided by 130 months = £100 per month) as you would previously have been paying interest on the while of the £13,000 until the end of the mortgage, and after converting some to repayment the balance on which you pay interest is reducing.

EdInvestor

I wouldn't do anything at the moment.A unit linked policy will bounce back when the markets recover, there is no point in cashing it in now when its value is low.Equally the return if you used the money to repay part of the mortgage would be low as you are only paying 3% interest.

Rather than go through the hassle of converting parts of the mortgage to repayment, if you do have a bit of extra money, you could simply overpay the interest-only mortgage by increasing the amount paid every month - this would be a good move when interest rates are low.

It is also a much more flexible method as if anything goes wrong you can just stop overpaying. Check if there are any overpayment penalties first if you want to do this.

If you find the markets have recovered later and your mortgage rate has gone up to 5% or more, that would be a time to check whether it's best to cash in the endowment and reduce the mortgage.