Remortgage dilemma

millstone_et_al

My current situation is as follows:

I have an endowment (interest only) mortgage with the Alliance & Leicester of £37,000 with 2 years and 3 months to run; this is currently on a four year stepped discount arrangement and the 'tied-in' period ends on 30 June this year. I have a further 5 year interest only loan from the Alliance & Leicester of £11,000, due for repayment in Oct 2008; I think the interest rate on this is around 6.5%. In total, I am paying £284 a month for these two loans. In addition, I have two endowment policies (It's a long story) the first with Friends Provident for which I'm paying £19 a month with an expected shortfall of possibly £3000 and due to mature in May of 2008; the second is with the Wesleyan for which I'm paying £146 a month and as I've heard nothing from them I assume it's on target. This one is due to mature in October of 2008, a few months after my 25 year mortgage with the Alliance & Leicester becomes due for repayment. I have £9500 deposited in a Northern Rock on-line account paying around 3.8% net; if this is left untouched (doubtful) it will go a long way towards repaying the £11000 loan.
My very modest non-downsizeable property is worth approx £100,000 and my monthly net income is just short of £1200 only. I am 58 years old; too old to expect any substantial improvement in my income. As you can see, things are rather tight just now.
Remortgaging with the Alliance & Leicester from July does not appear to be an option as they will not include the £11000 in any new arrangement. I am considering seeking out a good 3 or 5 year interest only fixed rate remortgage deal with another lender for 50 or maybe £55000. Obviously the endowment payouts together with what's left of the £9500 will not repay this amount, so my choices will be to either keep remortgaging the new loan indefinitely or to consider an equity release option to bridge the shortfall. Either option will entail the eventual loss of part or all of the house's equity.
Is there anything I've missed? Another viable option I could consider? Any comments or advice would be most welcome.

Ian_W

Hi millstone,
Wow, think you should have entitled the post "kitchen sink et al"!! :rotfl:

Right, having got my head around it a bit, in summary you owe £48k and have savings of £9k with 2 endowments that you haven't quantified in terms of likely pay-out. I'll split them into each element:

ENDOWMENTS You don't say the target amount for either, what you should do is contact both providers and ask for un up to date valuation. The FP projections are just that, not predictions. It might be doing better or worse than you think, with the stock market revival some are improving significantly apparently - whilst others are still dogs. The Wes monthly premium is huge, if it's over 25yrs, rather than a shorter term, you'll have paid in over £43K so you need to know how that is doing. If you get surrender values as well, may not be the same, might help with whether you should chuck them in now and reduce your mortgage.
MORTGAGE & LOAN Is the loan secured? If so you may not be able to move to another lender with your mortgage as they won't want to be a 2nd charge. How much is the penalty for early repayment of the loan, it may be better paying it off with a penalty and moving to a lower rate than 6.5%. If you can get a rate under 5% for the lot then the monthly repayments will be -£200, saving you £80pm. If you get a better idea of how much your endowments are worth it may be worth getting a part repayment, part IO mortgage which will, hopefully, give a better chance of paying it off. Best 5yr fixed start at about 4.5% so even with a penalty and fees MAY be worth switching both.
SAVINGS 3.8% isn't exactly earth shattering and though it won't make a huge difference check out the best deals on the savings section of the site, you should be getting nearer 5%, and if you haven't used up your mini cash ISA allowance put £3K in one now and another after 6/4/06 as you're giving Gordon 20% of your interest if you don't.

Don't think by the look of it things are quite as bleak as you seem to feel but it will depend on what Endowments are actually worth. HTH, post again when you have a better idea of what the EP's are worth.

millstone_et_al

Hello Ian,
Many thanks Ian for your analysis and advice and apologies for not coming back sooner. On the endowments front; the Wesleyan's target is for 21k and the Friends Provident is for 15k but is likely to be somewhat short of this figure. I took the Wesleyan policy out as recently as 1998, hence the seemingly high monthly premiums. The 11k loan is unsecured. I will bear in mind the ISA allowance; the savings are currently with a Northern Rock online account paying a gross figure of 5%.
I would appreciate your comments on another possibility I have been considering. This would entail converting all of the current mortgage of £36500 to a repayment mortgage over a period of 12 years. This will of course take me to the grand old age of 70 although I understand that some lenders will consider this. I should add that a half of my current income is derived from an occupational pension which may help to influence any decision. I calculate that monthly repayments for this amount over such a term will be around £330 assuming a half decent fixed rate deal of around four and a half percent. In addition, I propose to cash in both endowments which would enable me to repay the £11000 loan and provide a little most welcome spare cash. I would still be saving over £100 a month in repayments. If my calculations and suppositions are correct, I should eventually be able to retain all of the equity in the house. Does all of this add up, or have I omitted some important consideration?