Best 5 year saving plan

juniper123

One of my endowment policies recently matured, giving me £15,000 ( a LOT less than I was promised 25 years ago!) I will need to save this money until 2014 when my mortgage is due to be paid off – I have a part interest only, part re-payment mortgage. I have other endowment policies, which mature in 2014, and I’m wondering if I should cash them in as their value is dropping at a scary rate – but that’s another matter. I will definitely have a shortfall, so I will need to take some sort of action soon. For the moment though, I’m just looking for some advice on the best way to save/invest this £15,000 for the next 5 years.

Milarky

juniper123 wrote: »

One of my endowment policies recently matured, giving me £15,000 ( a LOT less than I was promised 25 years ago!) I will need to save this money until 2014 when my mortgage is due to be paid off – I have a part interest only, part re-payment mortgage. I have other endowment policies, which mature in 2014, and I’m wondering if I should cash them in as their value is dropping at a scary rate – but that’s another matter. I will definitely have a shortfall, so I will need to take some sort of action soon. For the moment though, I’m just looking for some advice on the best way to save/invest this £15,000 for the next 5 years.

Unless your mortgage does not allow for it, have you not considered paying it down with some or all of that payout? That was the purpose of the endowment after all....

juniper123

I'll double check, but I don't think we can do that. We're on a fixed rate deal till Jan 2011. Thanks for your help - I'm hopeless when it comes to this kind of stuff!

dunstonh

I’m wondering if I should cash them in as their value is dropping at a scary rate

It shouldnt be dropping at a scary rate. It should have dropped by what is typical for an investment at medium risk level. That drop should have stabalised some months back with small gains beginning to appear again (if unit linked, quite large gains from the low point). The exception could be old conventional with profits plans that tend to set their bonuses and MVRs in March or April.

juniper123

OK, I’ve just dug out the mortgage details. Our loan amount is £218,614. At the moment we are tied in to a fixed rate until Jan 2011. The mortgage is made up of £113,614 repayment and £105,000 interest only.

In 2014 will settle £122,000 - £105,000 of which we have to fund from our endowments or other savings. The rest is all repayment and will be settled in 2030 (though hopefully before).

We are allowed to over-pay up to £20,000 in any one year till the fixed rate period ends, so we could pay the £15,000 towards it now. But – sorry if I’m being daft here – would I be more sensible to save this or re-invest it to try to go some towards the shortfall (the, or would making a payment to the mortgage now be better as it would reduce the interest in the future?!

As far as the other endowments are concerned, I’ve just had the yearly statements from Standard Life in from two of them. This is one example – the policy that we were told would pay off £35,000:


Plan started: March 1989
Plan matures: March 2014
Current Value: £15,670
Total Value 1/2/08: £16,261
Amount paid on death: £35,000
Minimum amount paid at maturity: £18,727
Monthly payments: £45

3.75% - £19,300
5.5% - £21,000
7.25% - £22,700

That’s pretty scary to me.

I would appreciate any further help at all. Thanks to you both so far.

Milarky

The certainty of a reduced debt now (effectively a hedge against silly interest rates for the next five years) has to be worth seriously considering. Yes, you could 'invest' it for five years, but even if it did well, what could it realistically grow to in relation to the much larger existing mortgage - most of which isn't investment backed in the first place?

(Take the obvious option, that's my suggestion)

jamesd

If you're comfortable with the ups and downs of investments then now and the next year looks like a good time to be buying with a view to sell in five years. The trouble is, it's not guaranteed, so you are taking risk and would need a fallback plan in case the sum reduced in value.

If you don't like the risk it's likely that you can pay off ten percent of the fixed rate mortgage without penalty.

The choice comes down to risk and whether the investments grow at a higher rate than the mortgage interest rate. It seems likely that they will but it's not certain and they could drop first.

gozomark

juniper123 wrote: »

One of my endowment policies recently matured, giving me £15,000 ( a LOT less than I was promised 25 years ago!) .

what was the form of their promise ?

juniper123

Sorry, maybe "promised" was the wrong word to use - we were certainly led to believe that our mortgage would be comfortably paid off and there would be a bit left over. I'm sure it's discussed many times on the forum, and I know that you can claim for misselling - I don't think we fall into that category. I just want to try and look ahead now and make sure we do the right thing from now on.