redeem emdowment now to clear mortgage

Shunter64

Hi
I have a mortgage endowment policy with standard life that began in 1988 for £40k. I currently have a £57k mortgage that is now split £20000 int only and £37k repay to take account of any shortfall. The policy as of Feb 04 was worth £13424. The policy matures 2013. The policy is getting closer to my £20k target and by raising some extra cash i could amass enough cash to clear it in the next year or so. My question is should i do this? I am currently using the policy not only to clear my mortgage but to provide me with some savings if the policy makes more than £20k. But could i save more money by cashing it in early and using the money from my monthly payments on the int only mortgage aswell as the monthly premium of £51.40 to reduce the repayment mortgage number of years i have (8 years). Sorry it's longwinded!

Many thanks


Alison

lisyloo

What type of policy is it?

If it is a with-profits policy then these get bonuses at maturity which are usually worth waiting for.
In this case it might not make sense to cash in early.

Also be careful of the tax implications.
Endowments have some tax benefits but only after a certain period (10 years rings a bell).
If you cash in early you might have to pay yax.

Worth checking out both these issues before doing anything.

dunstonh

lisyloo covered the areas as usual.

You should ask for the current value of the endowment and the surrender value. This will give you an idea of what you will lose if you surrender.

Also, if the plan is one with a guaranteed sum assured to which annual bonuses are added to, these tend to be the ones where you need to stay until the end to get the most out. However, whether it's still cost effective to do so will depend on the target growth rate used by the company and the with profits fund potential.

Shunter64

Thanks to all who replied. I hadn't realised there was a tax issue and as the policy is with profits it would seem the best course of action would be to stay put.

many thanks again


Alison Turner

dunstonh

and as the policy is with profits it would seem the best course of action would be to stay put.

With profits covers a range of beasts from very awful to very good. For instance, if you have a Pearl or Royal & Sun Alliance plan, for example, you MAY be throwing money away by continuing contributions. However, a NU or St Life plan MAY be a different issue.