Loan Against Endowment Query

half-full_3

Hi,

I have a Prudential (Scottish Amicable) endowment policy which matures in 2017. The policy was released from my mortgage about seven years ago when I switched to a repayment mortgage. I kept the policy on for the life insurance cover.

I want to raise some cash for home improvements and asked Prudential about securing a personal loan against the policy. (I really want to let this policy mature). I have not yet received the paperwork.
The interest rate I was quoted is 5% per annum in arrears on the anniversary of commencement of the loan.
Is this a good deal?

I am assuming the repayments will work like something like this:

Initial Loan say, £5000 over 5 years. (Although I can pay back any amount at any time when I please)
£5000 divided by 60 months equals £83.33. If I save this amount each month for twelve months and the 5% interest being £250 and pay back £1249.96 on the first anniversary of the loan.
I will then owe £4000 over 4 years. The remaining £4000 divided by 48 months equals £83.33 and £1249.96 for the year again and the 5% interest on the remaining £4000 over twelve months is £200. And so on for the remaining 3 years.

By paying this way I calculate that total amount repayable on a £5000 loan over 60 months will be £5750. Interest payments year by year are £250, £200, £150, £100 and £50 equals £750.

The same loan from Halifax has an APR of 19.9%, and the total amount repayable is £7907.83. My gut feeling tells me my sums are well wrong.
I'll admit I am naive the way rates are calculated and the comparison is too good to be true.

Does anyone know if what I am assuming is right or wrong?
If the interest is calculated yearly, does it matter whether I pay monthly installments or once a year?
Is the 5% interest rate likely to change year to year? (Forgot to ask that one)

Thanks.

stagey_2

I'm not an expert but I borrowed against an endowment not linked to a mortgage some years ago and only every paid interest on the loan , the capitol loan (only £2800) reducing the endowment payout. The interest only on the loan was paid twice a year and for the last few years was about £160 pa - the endowment matures in a few months and is now just savings - perhaps someone else will come along and shed light on you figures - but it looks Ok to me.