Standard Life Endowment Help - Confused!

EdInvestor

To clarify, if you cash in the endowment and put it on deposit @4% also paying in the premiums to maturity, you will end up with a guaranteed £16,397.That compares with the guaranteed value of £15,084.

The unguaranteed projections of the maturity value (including any terminal bonus )are £15,500 @3.75% and £16,800 @5.5%.

Why bother to take a risk?

dunstonh

The unguaranteed projections of the maturity value (including any terminal bonus )are £15,500 @3.75% and £16,800 @5.5%.

Why bother to take a risk?

Because the projections are unreliable on old SL conventional WP plans and the potential for increased TBs over the coming years is quite good.

mleonard79

Hi again,
Sorry, have only just found time this morning to do the calculations I was going to do the other night. I’d be grateful if those with a better eye for maths than me could check it over and tell me if I’m missing something simple! Ok here's what I've worked out so far.

Details of St Life Endowment have been posted above – premiums are £50.75 and it has 61 months left to run

The loan is a Lombard loan of £13,900 over 48 mnths at 6.5% APR and one month has already been paid (this was originally a £15,000 loan over 5 years but I've just got unnecessary PPI cancelled on it hence the odd number.)

The mortgage is an RBS Flexible Choice Mortgage at 5.84% (£16,625 on Capital & Repayment - £8,300 of this at the higher rate of 6.59% due to an added on loan - and £17K interest only) with 63 months left to run


If we left everything the same and continued to pay it as it is then:

S Life Premium: £50.75 x 61 mnths = £3,095.75
Lombard Loan: £329.55 x 47 mnths = £15,488.85
RBS Mortgage: £386.72 x 63 mnths = £24,363.36
Total = £42,947.96
As I’m using £2,500 in the 3 scenarios below this would have to be subtracted to get a final figure for comparison so
Total = £40,447.96

This would result in £7,738.36 in mortgage interest and £1871.41 in loan interest so £9,609.77 in interest overall

Monthly Payments would be:

£767.02 for 47 mnths
£437.47 for 13 mnths
£386.72 for 2 mnths

This would leave £17k Interest Only to be paid back at the end of term. Depending on how the endowment performs this could leave us with a shortfall or a surplus.

If the endowment reaches:
£16.5K (This would leave a £500 shortfall = £40,947.96)
£17.5K (This would leave a £500 surplus = £39,947.96)
£18.5K (This would leave a £1,500 surplus = £38,947.96)
£19.5K (This would leave a £2,500 surplus = £37,947.96)
£20.5K (This would leave a £3,500 surplus = £36,947.96)

So

Scenario 1: Keep Endowment Policy

This would mean continuing to pay the loan and mortgage as well as the premium. However we would have £2500 approx from shares to put into the mortgage so the mortgage would be £14,125 C&R and £17K Interest Only

S Life Premium: £50.75 x 61 mnths = £3,095.75
Lombard Loan: £329.55 x 47 mnths = £15,488.85
RBS Mortgage: £345.41 x 63 mnths = £21,760.83
Total = £40,345.43

This would result in £7,635.83 in mortgage interest and £1,871.41 in loan interest so £9,507.24 in interest overall

Monthly Payments would be:

£725.71 for 47 mnths (saving of £41.31 on status quo = £1,941.57)
£396.16 for 14 mnths (saving of £41.31 on status quo = £578.34)
£345.41 for 2 mnths (saving of £41.31 on status quo = £82.62)
Total Saving = £2,602.53

At the end of this scenario I would again be left with a shortfall or surplus depending on how the endowment performs.

If the endowment reaches:
£16.5K (This would leave a £500 shortfall = £40,845.43)
£17.5K (This would leave a £500 surplus = £39,845.43)
£18.5K (This would leave a £1,500 surplus = £38,845.43)
£19.5K (This would leave a £2,500 surplus = £37,845.43)
£20.5K (This would leave a £3,500 surplus = £36,845.43)


Scenario 2 - Sell Endowment and Pay off Loan

The money from the endowment and the £2,500 share money would pay off the loan leaving only the mortgage to be paid. The Interest Only portion of the mortgage would be transferred fully to C&R (So £33,514 C&R)


RBS Mortgage: 623.72 x 63 mnths = £39,294.36

This would result in £5,780.36 in interest overall

Monthly Payments would be

£623.72 for 47 mnths (saving of £143.30 on status quo = £6,735.10)
£623.72 for 14 mnths (debit of £186.25 on status quo =-£2,607.50)
£623.72 for 2 mnths (debit of £237.00 on status quo = -£474.00)
Total Saving = £3,653.60

There would be neither a shortfall nor surplus with this scenario

Scenario 3 - Sell Endowment and Pay Proceeds Into Mortgage

With the money from the sale of the endowment and the shares we would have £14,000 approx to pay into the mortgage and the remainder would be converted to C&R leaving a mortgage balance of £19,613.36

Lombard Loan: £329.55 x 47 mnths = £15,488.85
RBS Mortgage: £365.16 x 63mnths = £23,005.08
Total = £38,493.93

This would result in £3,391.72 in mortgage interest and £1,871.41 in loan interest so £5,263.13 in interest overall

Monthly payments would be

£694.71 for 47 mnths (saving £72.31 on the status quo = £3,398.57)
£365.16 for 14 mnths (saving £72.31 on the status quo = £1,012.34)
£365.16 for 2 mnths (saving £21.56 on the status quo = £43.12)
Total Saving = £4,454.03

There would be neither a shortfall nor surplus with this scenario

Ok so obviously the status quo is very expensive and easily ruled out! After that keeping the endowment is most expensive unless it reached at least £19K by the end of term. Even then that would only be breaking even and the benefits of having the monthly savings over that time period as well as the saving in interest are worth quite a lot to us as money is tight. Therefore I’m again leaning towards selling and going with scenario 2 or 3. Now paying off the loan turns out to be slightly more expensive than paying the money into the mortgage which surprised me as it has the higher interest rate but I guess its working out at less as its over a shorter term. However the greatest monthly saving comes from paying off the loan at least to begin with. So I’m now toying with the idea of seeing what could be saved by remortgaging (as the difference between the two scenarios is £800 if I could remortgage and save £13p/m on that this would even that up and I could pay off the loan.) Any advice on what you experts think is the best course of action would be appreciated? I think I’ll start a new thread about advice on the remortgage so as not to cofuse myself. Thanks for any help.

Michelle

mleonard79

Forgot to say thanks to Dunstonh and Edinvestor for the information. I'll phone Standard Life and ask about the terminal bonuses and see if they will disclose what they are at to me or not just in case that helps. Also Edinvestor, I think I already have £16,300 guaranteed when you take into account the sum assured and the mortgage promise which would bring my minimum guaranteed to £16,300. As you can see from the calculations above (presuming they're correct!) though I would really need to be guaranteed £19K to just break even with keeping the endowment as opposed to selling it so I think you're right when you say its better not to take the risk. I would want to be sure it would make at least that before I decided to keep it and there's no way I can be really. Thanks again.

Michelle

Kantankrus_Mare

Would Standard Life pay out anything for the "Mortgage promise" if the endowment is cashed in early?

I assumed that this would only be paid out if the policy was payed up in full?

Id be very interested to hear if they do as I am also looking at cashing in my endowments once the demutualisation business has taken place.

mleonard79

Hi KM,
Interesting question but I'm pretty sure that they wouldn't pay out anything for the mortgage promise if the endowment is cashed in early - I was only taking it into account if I kept the endowment. Might ask them when I phone to ask about the terminal bonus though just in case but form the way they talk about the mortgage promise as a discretionaty tot-up payment etc I'm not actually entirely convinced we'll get much even on maturity! Perhaps some of the endowment experts on here would know for sure though??

Regards,

Michelle

dunstonh

The bulk of any future return is going to be on the terminal bonus and not the annual bonus. We are starting to see terminal bonuses increase again and a 45% terminal bonus on yours would see a terminal bonus on maturity of £4702.50. 45% is within the potential, although I would expect a 20 year one to be closer to 30%. It's going to be down to investment returns though, so you need a crystal ball on that.

The problem you have got is that SL are waiting to see how many walk away now they have their shares. Their bonuses are lower than other "open" insurers and that is in part due to poor managment and in part due to a possible exodus after shares. You may see some incentives to stay come your way. It isnt the best of times to be looking at a SL WP policy and decide what is the best to do. There are far more unknowns than most other providers.

mleonard79

Hi Dunstonh,
Sorry been really busy trying to find out about remortgaging. Ok I phoned standard life and asked them about the terminal bonuses. The assistant told me that there would probably be a terminal bonus on my account but he couldn't tell me for sure as the account has 5 years to run and there might not be in 5 years. He also said since there is currently no terminal bonus on the account he couldn't tell me how its performing etc. He did say that right now though 20 year accounts are getting a 2% terminal bonus. This doesn't sound too promising and he didn't sound very positive to be honest. He confirmed that I wouldn't get anything for the mortgage promise if I sold early as well which I already expected. So I'm more confused than ever! I understand what you're saying about it not being a good time to try and decide what to do as SL is in a period of change so I may leave it a little while. Can you tell me though what would you expect me to come away with if I kept the policy but stopped paying premiums to it (I think its called made up?) Thanks a lot.

Michelle

mleonard79

Just to say if any maths experts could have a look at my figures posted above and tell me if I've got my projections right I'd be very grateful! I'm not too confident in my math ability! Thanks a lot.