Cashing in the endowment to pay off the mortgage.

Antonio_Vivaldi

I am in the happy position of only having 26 more months to pay off my mortgage. The current cash-in value of our endowment policy (which we divorced from the mortgage long ago - it's been kept going as a stand-alone investment policy) is £32,000. As luck would have it that now matches the remaining value of our repayment mortgage loan which we have been paying off at a rate of knots. I have a choice. Cash in the endowment and pay off the mortgage in one fell swoop and save myself nearly £34,000 in remaining combined mortgage repayments and endowment premiums. Or, continue paying it off gradually at about £1,300 per month, but get the tax free bonanza from my maturing endowment policy. This will probably be about £52,000, given the actual accumulated policy value, a hoped-for 4% growth rate on the underlying with-profits fund, plus the £10,000 shortfall guarantee (it's an Aviva policy). On the face of it paying off now saves me £34,000- and I could stuff all that in an ISA to get a return of some sort. Waiting for the last 26 months would however give me a profit of just £18,000 (£52,000 payout minus £34,000 in further premiums). So paying off now seems the best bet. Am I right? Have I missed something?

JA1000

What guarantees are due to be paid on the endowment? Are you sure you will get £32k or is that just the current value?

How much interest will you pay inthe next 26 months, being the end of the mortgage I am assuming it will be minimal, replacing capital for capital does not really gain. If you can continue as you are, why not and have a big pay off from the Endowment?

MiloH

You shouldn't deduct the £34,000 cost of premiums when comparing outcomes.

If you cash in and pay off your mortgage now, you'll save £1,300 per month in your ISAs and in 26 months' time if you get a 7% per year net of charges return you'll have around £36,500.

On the other hand, you could keep repaying your mortgage over the 26 months within your £1,300 per month so that it's worth £0 AND have an endowment payout of £52,000 (based on your figures). You would be £15,500 richer.

I'm a little sceptical about the likelihood of the endowment growing from £32K to £52K in such a short period, even with the mortgage promise though...