Should We Abandon Endowment and Overpay Interest Instead?

Edw65

Hello!

We (my wife and me!) have 14 yrs to run on our mortage and we have a total of £119k outstanding of which £100k is on an Interest only basis..and we have a Zurich endowment policy (currently on amber alert) running alongside it which costs £207 PCM..The current surrender value is almost bang on £20k..And we have been wondering about paying the £20k in as a lump sum and then overpaying on the interest payments by at least the £207 we were putting into endowment...We are on a Tracker at 1.25 above Base Rate so 1.75% at the moment..Lender BM!

The house is worth about £260-270k but it is worth noting that our income is reduced at present and major overpaying of loan is at least 2yrs off whilst we pay off any other credit card debts etc..In the longer run our aim is to pay off the mortgage in about 12yrs..and then spend the remaining 7 or 8yrs saving like mad for retirement etc at 65..We are both 44 at the moment!

Any thoughts from financially savvy MSE believers out there??

EdInvestor

Could be a good idea but post some more info on the policy.

Type of endowment (eg unit linked)
If with profits,
-Guaranteed sum assured
-Declared bonuses
Surrender value
Monthly premium
Maturity date
Maturity forecasts

What is the average interest rate you are paying on the credit card debt?

Edw65

It was an Allied Dunbar Policy and its called an Adaptable Endowment Plan currently projecting at 4% £70.4k and at 6.25% £90.1k against the £100K we need.
There is joint life assurance element and critical illness cover etc which makes up £30.20 of premium and wavor of contributions is about £4 pcm.

Thanks!

finnigan

I'm sure I've got this wrong but are you suggesting you pay £200 pcm towards the £100k capital you owe, along with the £20k the policy is currently worth?

The £20k brings the debt to £80k
£200pcm over 10 years is only £24k, 20 years £48k

Am I missing something?

VIGILANT22

finnigan wrote: »

I'm sure I've got this wrong but are you suggesting you pay £200 pcm towards the £100k capital you owe, along with the £20k the policy is currently worth?

The £20k brings the debt to £80k
£200pcm over 10 years is only £24k, 20 years £48k

Am I missing something?

Yes, I think you are..........

Edw65

Hi

I am suggesting meeting the normal interest only payments about £271 pcm and paying the £200 that currently is going into the Endowment as an overpayment..and whilst we probably cant afford to pay more than that for the next 18months to 2 yrs..increasing that overpayment to about £350-400 pcm for the remaider of the 14yr term...and dumping in any other funds we manage to get hold of...possible inheritence small pension sum that kicks in in 10yrs etc.

Thanks!

HarveyGal

I have an endowment policy - intended originally to cover my interest only mortgage but now with a shortfall...but I cannot cash in the endowment without the permission of my lender - and they will only grant that permission (ie declare they have no interest in it) if I switch my mortgage to Capital-Repayment.

Would this be true for you? Can you afford to change to a Capital-Repayment in the short term?

Edw65

I already have a NFI statement from my lender to Zurich so I wont need to formally change onto repayment..just intend to overpay as much as we can afford with £200 being the minimum extra per month..but due to employment change of circs our income is down alot year on year!

finnigan

VIGILANT22 wrote: »

Yes, I think you are..........

Lol, best stick to crochet then,

Good luck op, hope it works out for you

Edw65

You lost me...! Are you saying that we will have a potential massive shortfall..cos It looks to me like OP around £300 PCM assuming rate stay low which is not that likely long term (currently 1.25% over base) on £80k balance leaves us about 10-12k short which is same as the endowment prediction..but feels like a better option with the flexibilty of putting in lump sums when we can on top etc...

Radarjet

I sold up my endowments - got 50k,promptly committed it elsewhere longterm (thinking I was being clever) and not fundementally being very financially savvy still, I didnt realize I'd get stung for tax on it the next year, so am now scrabbling round looking for £3429 that I wasn't expecting to need to find.

So learn from anothers error and just factor that tax in if you do sell them and do not commit the lot elsewhere long term.