What would you do??

beefster

I am in a fairly good position to enable me to pay my mortgage off early but was seeking opinion on the best way to go about it.

Repayment Mortgage stands at £79000.

I have 2 endowments maturing in 2013 that will pay together @ 4% £66000
costing £189 PCM.
One with the Pru, who seem to be on the road to recovery given the 12% gains this year published in the daily mail last week. The other is performing very poorly with Friends Prov.

Cash in values are currently £36000 in total.

I have £45000 available in savings / shares etc. Some of which I want to be able to keep and have access to (rainy day money).

My theory was to cash in the endowments and add £18000 to enable me to pay £54000 off the mortgage. Then start a new offset mortgage for £25000 (minimum they will do) using my savings to offset. Then i would over pay monthly, paying the equivalent to what I am paying now for endowment and mortgage. ie. £700 PCM.
Using the I.F. mortgage calculator I should pay it off in August 2009. But I always have the savings to enable me to pay beforehand if I feel the need / win the lotto!

I would appreciate your opinions and advice please.

Thefunkygibbons

Tricky, this is the difficulty with endowmnets as one is trying to predict an investment return, which may or not exceed the monthly mortgage saved.

There is an argument that most of the endowment fees have been paid so that the return over the next few years will accrue to you and therefore they are more valuable to keep that cashing in.

I am not sure that the higher rates on an offset would be worth it, I believe that as a rule of thrumb, one needs £30k offset to make it worthwhile

If it was me, I would use as much savings as you can (and feel comfortable with) to knock off the mortgage and try to get rid of it in total over the next few years, and then let the endowments mature when they do.

Other thoughts?

gentlepurr

i agree with tfg's, hang on to your endowments if you can. whatever surrender value they give you will be [email="cr@p"]cr@p[/email] anyway, so even if they don't do as well as first predicted, its still a handy lump sum later, assuming you can afford to keep paying the premiums.

xx

beefster

OK. So I use some of my savings to reduce the mortgage to £54000
I keep paying the endowments which matures in 2013 and at 4% returns £62000. or at 6% - £72000 or at 8% (yeah right!) - £82000.

IF's calculator says if I over pay to the same level as I am paying now the benefit will be to pay off the mortgage in 2013 and have £38000 in the bank minimum from the endowment.

However If I pay off the mortgage by 2009 and invest the £700 that the endowment plus mortgage were costing then the saving would be totalled to £36000 by 2013 (at 4.25%). This could be increased by utlising one of the higher interest regular savings accounts currently available.

There does not seem to be much in it other than the increased value of the endowment should it reach over 4% growth and the higher interest accounts available at the moment. Therefore the decision is basically whether to gamble on the endowment return or scramble around for higher returns on the savings. Unless I am missing something fudemental?

frible

Just one thought, it might be worth getting a quote from a company that buys endowments, they could be worth more than the "official" quotes.

brranger

An IF offset has higher %rates and start up fees than some others might be worth looking around like at c&G Lloyds tsb or ybs etc before making final choice as some offset savings and current acc and some don't big differance to you offset.