Should we pay off mortgage with windfall?

Fozz

Hi, I would appreciate some advice on our situation. Basically we have just received £40,000 from a relative's house sale. We want to use this to improve our house, but we have an endowment mortage(for £37,500) with a £10,000 shortfall which ends in November 2015.
Would it be better to pay off the mortgage with the money, then take out another loan for home improvements, bearing in mind the current low interest rates? My DH doesn't want to do anything about the mortgage at the moment, he has always said that we don't know what will happen by the end of the endowment term and the shortfall may not be so bad, but it has always worried me, and I would love to just get rid of it while we have the chance.
We have a fixed rate of 4.79% until the end of the mortgage term and pay £207.00 a month mortgage and £61.00 endowment.

fatbelly

This is a bit out of my usual field but my take on this would be:

1. You're not going to get more than 4.79% after tax on your savings, at least not for some time. So it would make sense to pay the mortgage.

2. However, if that means that you then have to borrow to fund your improvements, then it's going to be at a higher rate than 4.79%, so consider retaining enough cash for that job, and partly pay off the mortgage.

3. But is it a with-profits or unit-linked endowment? Who with? What could you surrender it for at the moment? That should hopefully produce enough for the improvements and still allow you to pay off the mortgage.

Martin makes some comments on endowments here

Nigella_2

Might be best to see a financial adviser to do the sums.

Was there not cases of shortfall compensation recently??

Robert_Sterling_3

The sums are easy enough.
It is the decision which is harder.
It is the OP's decision to make.
I think money off the mortgage is a good idea.
We won't know what the "right" decision is until it is too late to do anything about it.
There are no "experts" who do know what will happen next.

CLAPTON

It would make no sense to pay off a mortgage at 4.79% and then borrow for the improvements at a higher rate.... so first check what sort of rate you would get on new borrowing ; you may be unpleasantly surprised.

Its not going to be possible to 'know' what the shortfall in the endowment will be in 2015 but maybe worthwhile finding out what todays cash in value is... in general endowments have been poor value and you may be better to simply cash it in now and save up for the shortfall yourselves.. at least you will know exactly where you are.

Robert_Sterling_3

I am not quite sure what to make of this. You have an endowment. It is at a very low price at present. Sell it now !!