Should I pay off mortgage or keep endowment

india2007

Hi,

Any ideas what would be my best option? Due to separation I need to reduce or pay off my mortgage. The outstanding mortgage is £80000 and is still in joint names. As part of the divorce settlement the outstanding amount will be reduced to £40000. However the house needs about £10000 of work done on it in the next couple of years.

I think my options are either:

To apply for a £40000 interest only mortgage for 3 years as I have an endowment policy which is due to mature then. It was supposed to be worth £45000 but maturity value is estimated at about £30000 however there would be a final bonus on this and probably an extra £7000 from the providers shortfall fund so it could come to £40000.

Or:

To sell my endowment currently valued at £28000 and pay off the other £12000 from savings. This would leave me with hardly any savings and not much money for the work which needs to be done on the house but would obviously reduce my monthly outgoings ie. £71 for the endowment +mortgage payments (maybe £100?)

I thinks the key issues are how much it would cost me to get a mortgage versus how much the endowment policy will increase by letting run to the end.

Sorry this is a bit long winded. Thanks for reading.

ritz55

Would recommend to sell off the Endownment policy and clear the mortgage. The premium you'll save on the Endownment and interest payment over the same period of time as taking out a mortgage, will probably be higher. 1st year you will have saved £71+£100=£171 x 12 = £2052 and put this back into your saving account again.

EdInvestor

Firstly make sure you have the endowment properly assigned under your name only via the solicitor so it is under your control and you can cash it in or use it how you like in future.This is essential otherwise the provider willl block it.

Then post some details about it so we can make a judgment about the financial aspects.

Provider
Guaranteeed sum assured
Declared bonuses
Surrender value
Monthly premium
Maturity date
Maturity forecasts
Interest rate payable on mortgage
Endowment promise projected amount (?)

india2007

The endowment is already in my sole name as it was linked to a previous mortgage which I had in my own right.

The provider is Aviva
Guaranteeed sum assured - £16858
Guaranteed bonus - £10253
Current surrender value from Aviva - £28,581
Monthly premium - £71
Maturity date - March 2013
Maturity forecasts - 4% - £29300
5% - £30500
6% - £31800
These seem low compared to the current surrender value but apparently the forecast does not include everything eg. final bonus

Interest rate payable on mortgage- because I'd be reducing the outstanding mortgage I would have to remortgage so not sure

Endowment promise projected amount (?) - apparently if I haven't heard otherwise by March this year it will be £7400

Thank you for the input and hope this clarifies the situation

ukcarper

If my Aviva policies were any thing to go by I wouldn’t count on 4% figure my policy that matured last Jan didn’t achieve the 4% figure and I’m expecting the one maturing in April to be the same if not worst. Aviva have said that some of their policies final bonus will be cut I’m not sure if that applies to mine and they have taken the final bonuses off their web site.

india2007

Thanks for the comments. Useful to hear first hand from an Aviva endowment holder. They made it sound as though my policy could do quite well by maturity but didn't give any ideas on final bonuses. It's difficult to know still which is the best option because the main factor is how much I would get for the endowment at maturity and the values they give are quite vague. Will take on board the comments and do a bit more research.

EdInvestor

india2007 wrote: »

Interest rate payable on mortgage- because I'd be reducing the outstanding mortgage I would have to remortgage so not sure

Please post the current rate anyway so we can do a calculation.

Endowment promise projected amount (?) - apparently if I haven't heard otherwise by March this year it will be £7400

If that is so you should get it in writing in March and take it into acccount.

Aviva has just announced reduced TBs for maturing policies, which is not very encouraging given markets have improved over the past year.

Have you received money under the reattribution scheme?

ukcarper

india2007 wrote: »

Thanks for the comments. Useful to hear first hand from an Aviva endowment holder. They made it sound as though my policy could do quite well by maturity but didn't give any ideas on final bonuses. It's difficult to know still which is the best option because the main factor is how much I would get for the endowment at maturity and the values they give are quite vague. Will take on board the comments and do a bit more research.

The review I received in Feb 2008 gave a 4% figure of £24,700 a shortfall of £300 it paid out £23,600 in Jan 2009 and they have reduced terminal bonuses again since then.

The only reason I’ve kept my other endowment is because of the promise. This policy has a target of £20,000 and 4% figure for this policy in April 2008 was £15,500, but I think I will be lucky to get £15,500 including the promise, which is £2300. As the terminal bonus was reduced in July I think that the premiums I have paid this year have counted for nothing in fact the bonus has been reduced by more than I’ve paid in premiums.

india2007

Quote:
Originally Posted by india2007

Interest rate payable on mortgage- because I'd be reducing the outstanding mortgage I would have to remortgage so not sure

Please post the current rate anyway so we can do a calculation.

The current rate is 4% - have talked to current provider and I could reduce my current mortgage to £40000 now - no penalties and fee would be £150 however there is no guarantee that they would then accept me if I applied to put the mortgage into just my name but at least that would reduce my costs in the short term.

EdInvestor

india2007 wrote: »

Maturity forecasts - 4% - £29300
5% - £30500
6% - £31800

If you surrendered the endowment now and used the lump sum to reduce the mortgage, then put the premiums towards the monthly mortgage payment until maturity, you net return would be £34, 867 which beats alll their forecasts with no risk.

Maturity forecasts usually do include accumulated TB, so only the MP would make a clear difference and I suggest you wait for something in writing on this in March.

If nothing is forthcoming,I would surrender the endowment, pay off half the mortgage and use the remaining money for the works.