Does this offsetting plan make sense?

shteve

We were on the Nationwide 2.5% SVR, £60k interest only, £30k repayment with two endowments supposed to fund £90k (currently expecting about £80k when they mature in 12 years). We've now moved to a FD offset tracker (2.49% over BOE) and will be 100% offsetting in a month or so. The plan is to leave it there and continue with the endowments, with the £300 we were paying for the mortgage to build up our savings again until the endowment pays out, then close off the mortgage. I'm a 40% tax payer, with the missus on standard tax. Is there a flaw in this that anyone can spot?

firesidemaid

how much per month do you pay into the endowments?

does it make sense to continue paying into them, rather than cashing them in and doing something else/better with the money?

shteve

We're 12 years in to the endowments, paying in £160 a month. Currently valued at less than we've put in. I've not got the actual amount to hand, but I think it would be better to leave them in to get over the front loading? They were sold on the assumption of a 5% interest, but they're earning under that and I'm hoping the stock market will pick up in the next few years.

Thrugelmir

shteve wrote: »

We're 12 years in to the endowments, paying in £160 a month. Currently valued at less than we've put in. I've not got the actual amount to hand, but I think it would be better to leave them in to get over the front loading? They were sold on the assumption of a 5% interest, but they're earning under that and I'm hoping the stock market will pick up in the next few years.

Are the endowments unit linked policies?

When you say a 100% offsetting, is that the entire £90k mortgage ?

getmore4less

Bit late since you allready did it.

At 2.5% you could have found savings that paid more but with a 2.99% rate that is a lot harder.

Borrowing money at a higher rate is not always a good move.

Endowments are just savings plans so look at them against other allternative investments


Make sure the ISAs are full and consider pension wrappers for some of that 40% tax income.

shteve

Thrugelmir wrote: »

Are the endowments unit linked policies?

When you say a 100% offsetting, is that the entire £90k mortgage ?

Yes unit linked, and yes, 100% of the entire 90k.

getmore4less - yes I realise it's a higher rate, but I wanted to get in before the rates start going back up. With offsetting 100% we won't be affected. I'll start putting the money that would have been our existing payments into a better ISA (current one is only paying 0.01%!)

Thrugelmir

If you "offset" 100% you'll have to constantly reduce the balance in the offset account. As you'll still be paying the normal monthly repayment and also be credited with the interest earnt on the offset.

As a 40% taxpayer have you considered topping up your pension with the part of the "savings" ?