Help! We need to dig ourselves out of a hole.

Head_in_the_Sand_2

We are a married couple and have a just turned 50. We have a standard mortgage (which follows the base rate) with Nationwide for £77,600 which is due to be repaid in June 2013 for which we currently pay £165 based on a gross interest rate of 2.5%. Our home is currently worth approx £275,000.

We have two endowment policies which, we are told are seriously under-performing (Red-Alert letters) and are unlikely to provide the sum needed to repay the capital. The details of the endowment policies are:

· Guardian Homebuilder Unit-Linked Policy #1
o Target amount - £67,000
o Maturity date – November 2013
o Monthly payment = £120
o Total premiums paid to date = £27,500
o Guaranteed Sum Assured - £67,000 (the life assurance component)
o Paid Up Value @ 4% = £29,500
o Paid Up Value @ 6% = £32,100
o Paid Up Value @ 8% = £35,000
o Current cash-in value = £25,500
· Guardian Homebuilder Unit-Linked Policy #2
o Target amount - £10,750
o Maturity date – June 2013
o Monthly payment - £26.50
o Total premiums paid to date = £5,270
o Guaranteed Sum Assured – £10,750 (the life assurance component)
o Paid Up Value @ 4% = £4,770
o Paid Up Value @ 6% = £5,160
o Paid Up Value @ 8% = £5,580
o Current cash-in value = £4,190
NB:We have to remember that the values of the units we have bought with our policies is currently seriously depressed because of the value of stock markets.

These are our thoughts on the options open to us:

• Keep the endowment policies and interest-only mortgage running as they are and to overpay to reduce the capital component. (We believe the building society only allows overpayments of up to £500 per month so this may not be enough.)
• Cash-in or sell the policies – if this is feasible – and use the monies to reduce the capital and change to a repayment mortgage on the balance keeping the maturity date at 2013.
• Keep the endowment policies and change the £77,750 to a repayment mortgage over a longer term.
• Cash-in or sell the policies – if this is feasible – and use the monies to reduce the capital and change to a repayment mortgage over a longer term.

Is anyone able to suggest what our best options are bearing in mind that we would rather not extend the mortgage period unless we really have to. We can probably manage to increase our payments by about £500 per month….at a push.

Many thanks.

dimbo61

As your mortgage rate is 2.5% you should be saving the £500 a month you can afford into either a cash ISA paying 3.61% Barclays or overpaying the mortgage.
Can you afford to save £600 a month and put £300 each into the Barclays ISA,s this would give you £7200 in 12 months plus interest TAX free.
If you mortgage rate goes higher than 3.61% then reduce the monthly ISA payment to say £10 and pay the rest off the interest only mortgage.
I dont know about the endowments as not my field ( others will post) but most endowments not doing well at the moment.
If you cashed in the endowments and paid £30,000 off the mortgage you would have approx £47,600 left

Trying_to_be_good

You could do as dimbo has suggested, or for more peace of mind covert SOME of the outstanding mortgage balance to repayment over the existing term.

Ideally, I'd want to do both (currently you'll receive more interest from the Barclays ISA, but this won't necessarily be the case when interest rates start to rise.

cash-magnet

Nationwide standard variable mortgages can be over-paid each month without penalty. The £500 limit is actually a 0.00-499.99 range that when paid will come off your capital but will not reduce what you pay each month. Any over-payments of £500 or greater will pay that lump sum off the amount you owe and also trigger a lower monthly payment figure to be generated.

dimbo61

If you use the endowment money to pay £30,000 off the mortgage and dont get hit with a ERC charge you will still have approx £48,000 left on the mortgage.
To clear that in only 4 years you need to repay £500 extra over your interest only payment and save £6000 a year in either the best paying cash ISA or a regular saver ( Barclays 6% saver max £250 a month EACH ).

Head_in_the_Sand_2

Thanks for your replies. It's given us valuable food for thought. We hadn't considered ISAs before.

Before we do anything else is there anyone who can provide some help on the endowment front?

Many thanks.

Fairwinds

I'm interested in what advice you get on the endowments too

dimbo61

You have already paid £27,500 into the 1st endowment and if you carry on paying 54 months x 120 = £6480.
In total you will have paid in almost £34,000 to get £29,500/£32,100 or at best £35,000 !!!!
same with second endowment so in my humble opinion get rid and pay the money off the mortgage you can then overpay by £146.50 a month

Fairwinds

Does the "Paid Up" statement not mean that you don't pay any more monthly premiums. That is my understanding anyway

Trying_to_be_good

GordonD wrote: »

Does the "Paid Up" statement not mean that you don't pay any more monthly premiums. That is my understanding anyway

OP - you need to clarify if these are paid up values, i.e. with no further contributions, or forecasts based on continuing contributions. It makes a big difference as to whether you should be thinking about cashing them in.

Head_in_the_Sand_2

Many Thanks all for your comments. :T

To GORDON D - Yes, you are correct 'Paid Up' means no more monthly premiums.

To TRYING TO BE GOOD - These are definately Paid up values. The Cash In values are also stated in original post. If we carry on paying the monthly premiums the Illustrated Maturity Forecast Values are

#1 £42000
#2 £ 6800

To DIMBO 61 Knowing these figures, would it change your opined course of action ?.

All advice gratefully received !!!!