Should we cash in our endowment?

EdInvestor

Coveredinbees!!!! wrote: »

I'm in the same boat I'm shelling out £90 a month and I've paid in about £1000 more than the thing is worth. I don't know whether to cash in or keep it going, we're 11 years in with 14 to go.

Post some more info

Provider
Guaranteed sum assured
Declared bonuses
Surrender value
Monthly premium
Maturity date
Maturity projections
Interest rate payable on mortgage

allisond

EdInvestor wrote: »

To determine a way forward you need to compare the interest rate on the mortgage with the likely return from the endowment.So can't give much of a steer until you have a clearer idea on the rate.

Having a quick look at Nationwides current tracker mortgage rates - we are looking at paying a rate of 2.74% for the first 2 years.

EdInvestor

allisond wrote: »

Hi we took out a unit linked life endowment in June 1993 with London&Manchester, it is now with Friends Provident.
£34,600.00 assuming 4% annual growth
£38,500.00 assuming 6% annual growth
£45,900.00 assuming 8% annual growth

If you cashed in this policy and used the proceeds to reduce the new mortgage with a rate of 2.74%, your return at maturity would be £34,901, slightly shading FP's lowest projection. This return would be risk free.

Since this is a unit linked policy, you might hope for a bit more than 4%, but given you are paying compulsory life cover and charges within the policy, 5% is probably realistic.

The position would be clear cut if the mortgage rate was a bit higher.Right now it comes down to a choice on risk. But premium for taking the risk is very small, IMHO not worth it.Unless you would need to replace the life cover and would face problems doing that,I would dump the policy and devote the proceeds to reducing the amount owed.

allisond

If you cashed in this policy and used the proceeds to reduce the new mortgage with a rate of 2.74%, your return at maturity would be £34,901, slightly shading FP's lowest projection. This return would be risk free.

The position would be clear cut if the mortgage rate was a bit higher.

Sorry do you mean that if the mortgage rate was higher then it would be an easier decision to cash in the policy? As by the time we find a house to buy - which could take any amount of time - the mortgage rates probably will be higher. If the rate was higher would the return at maturity be higher - as i don't know how you have calculated that?

Many thanks for taking the time to answer this for me..

EdInvestor

allisond wrote: »

Sorry do you mean that if the mortgage rate was higher then it would be an easier decision to cash in the policy? As by the time we find a house to buy - which could take any amount of time - the mortgage rates probably will be higher. If the rate was higher would the return at maturity be higher

Yes, you've got it..

allisond

EdInvestor wrote: »

Yes, you've got it..

thanks ever so much, really appreciate it... got there in the end.